Updated: Apr 19
“HECMs” Are Highly Regulated for Consumer Protections
Did you know that reverse mortgage loans now have extremely strong consumer protections, including federal insurance?
“HECM” stands for Home Equity Conversion Mortgage, and it’s the most popular form of reverse mortgage—for good reason. It’s so popular that many people use “HECM” interchangeably with the term “reverse mortgage.”
Since 2013, the Federal Housing Administration (FHA) and the United States Department of Housing and Urban Development (HUD) have continually added consumer protections to HECMs.
Here’s Why HECMs Are So Attractive.
You Always Own Your Home
Even though you receive a payout for the equity in your home from a reverse mortgage loan, you are still the homeowner. And even if you spent every penny of the loan proceeds, no one—not the lender or the government—can make you leave your home as long as you pay taxes and insurance, and maintain the home. But if you do decide you want to sell your home and move somewhere else, you absolutely can.
You always own the home
Even if all the loan proceeds are spent.
A Non-Qualifying Spouse Is Still Protected
Only one homeowner must be 62 or older to qualify for a reverse mortgage loan. But what happens if a spouse of the borrower is younger than 62 when the loan is taken, and the qualifying spouse passes away? As long as the surviving spouse is on the title, they retain full ownership of the home, just as if they had been the one to take out the loan originally.
Your Loan Can Never Exceed the Value of Your Home
If the homeowners sell the home or pass away, the value of the home is used to pay back the reverse mortgage loan balance. If the loan is less than the home is worth, the excess cash goes either to the homeowners or their heirs.
But let’s say the housing market is down when the loan needs to be paid off, and the loan amount far exceeds the market value of the home. Do the homeowners or the heirs have to pay the difference? No, they do not! HECMs are insured by the federal government, and if the loan exceeds the proceeds of the home’s sale, the FHA pays the balance.
If the loan exceeds the proceeds of
The home’s sale, the Federal Housing Administration pays the balance
Not you or your heirs!
You Don’t Have to Make Monthly Payments
The obligation of a monthly mortgage payment is a serious responsibility, and it keeps many people from retiring when they really want to. With a reverse mortgage loan, you never have to make a monthly payment. If you want to make payments for cash flow or tax purposes, you may do so, but there is no obligation, and it does not impact your ownership of the home. The only costs you need to take care of are property taxes, homeowner’s insurance, and home maintenance.
Is This Surprising to You?
We suspect that it is. Most people with a negative view of reverse mortgage loans—even people who are considered financial experts—base their opinions on what reverse mortgage loans used to be like before 2014. Either that or they confuse bespoke reverse mortgage loans with the federally insured HECM loans that we’ve covered in this article.
Do You Want to Make the Most of Your Retirement Dollars? Use our reverse mortgage calculator to get more details!
And if you’re ready for the next steps, a local Fairway specialist will be happy to help you.
*The information contained herein is distributed for educational purposes only, and Fairway Independent Mortgage Corporation (Fairway) does not guarantee any services, information and/or advice provided by the individuals, nor does it imply a partnership or exclusive relationship between Fairway and the individuals.
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