top of page

Home equity conversion mortgage: understanding the basics

Updated: Feb 7, 2023


Homeowners, looking for a way to access the equity in your home? You may have heard of a home equity conversion mortgage (HECM). This type of loan is designed for seniors and allows them to turn the equity in their home into cash. We'll explore what HECMs are, how they work, and why you might want to consider one.


What is a Home Equity Conversion Mortgage?

A HECM is a type of reverse mortgage that's insured by the Federal Housing Administration (FHA). It allows seniors to access the equity in their homes without having to sell the property or make monthly mortgage payments. Instead, the loan is repaid when the borrower sells the home, dies, or moves out.


How do HECMs Work?

To be eligible for a HECM, you must be at least 62 years old and have equity in your home. You also must live in the home as your primary residence. If you meet these requirements, you can apply for a HECM loan, which is a line of credit that you can draw on as needed. You can use the money for any purpose, such as paying for medical expenses, home repairs, or other bills.

I would say the main benefit of a HECM is that you don't have to make monthly mortgage payments as long as you live in the home. Instead, the interest on the loan accumulates over time, and the loan balance grows. This can have an impact on the amount of equity you have in your home, so it's important to carefully consider your options before deciding if a HECM is right for you.


Another advantage of HECMs is that they're FHA-insured, which means that if you die or sell the home, the loan will be paid off from the sale proceeds, even if the loan balance is greater than the value of the home. This can provide peace of mind for you and your heirs, as it ensures that the loan will not become a burden for them.


Why You Might Want to Consider a HECM

If you're a senior with a lot of equity in your home, a HECM can provide you with access to that money without having to sell the home or make monthly mortgage payments. This can be especially beneficial if you're facing unexpected expenses, such as medical bills or home repairs, or if you simply want to improve your financial security.

Another reason to consider a HECM is that it can provide you with a reliable source of income in retirement. Unlike traditional retirement income sources, such as Social Security or a pension, a HECM loan line of credit will grow over time and will not be affected by changes in the stock market or other economic conditions.

In Conclusion

A home equity conversion mortgage (HECM) is a type of reverse mortgage that can provide seniors with access to the equity in their homes without having to sell the property or make monthly mortgage payments. HECMs are insured by the FHA, which means that if you die or sell the home, the loan will be paid off from the sale proceeds, even if the loan balance is greater than the value of the home. If you're a senior with a lot of equity in your home, a HECM may be a good option for you to consider. Just be sure to carefully consider the terms of the loan and the potential impact on your equity before making a decision.


Talk to an expert at Lendinghousebrokers.com

0 comments

Recent Posts

See All

Comments


bottom of page