The HECM Mortgage
Now you can have the financial freedom you want with the HECM Mortgage. Stay in your home for as long as you wish with a reverse mortgage that provides a ready source of cash to use as you see fit. And you don’t have to repay the loan as long as you live in your home.
Q: What is the HECM Mortgage?
A: This HUD proprietary reverse mortgage product is designed to benefit homeowners age 62 or older who are looking for a way to tap their home equity without having to pay back the loan while they still live in their home. With a HECM, you borrow against the value of your home, and receive loan proceeds according to the payment plan that you select. It can provide the maximum amount of flexibility to address your particular financial needs — whether it is a lump sum to pay an unexpected hospital bill, or a stream of regular payments to supplement your monthly income. Unlike traditional home equity loans, no repayment of the loan is required until you no longer occupy the home as your principal residence. When you sell your home or move, the accrued interest plus any cash the lender has paid to you becomes due and payable.
Q: Who is eligible for a reverse mortgage?
A: You, and any co-borrowers, must be at least 62 years old and either own your home free and clear or have a very low outstanding mortgage balance that can be paid off at loan closing. The home must be your principal residence and also be a single-family, one unit dwelling or a condominium or Planned Unit Development (PUD) that meets standard HUD requirements. You also must agree to accept mortgage counseling from a nonprofit or public agency engaged in reverse mortgage counseling, or from a HUD counselor. Family members are strongly encouraged to attend these counseling sessions.
Q: How much money can I borrow?
A: The maximum amount you can borrow—the principal limit—is based on three factors: the number of borrowers, the ages of those borrowers, and the adjusted property value. The adjusted property value is the lesser of the appraised value of your home or the $679,650 loan limit, which is revised annually. Your principal limit is determined at the time you close
your loan.
Q: What payment plans are available?
A: In most states, a borrower may choose among three payment options: tenure, modified tenure, and a line of credit. You may change payment plans at any time, and as often as you like, for a small fee.
- Tenure option: You will receive equal monthly payments for as long as you occupy your home as a principal residence.
- Line of Credit option: You may draw up to a maximum amount of cash at times and in amounts of your choosing, as long as you occupy your home as a principal residence. (Option not available in Texas.)
- Modified Tenure Plan: Allows you to set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly payments as long as you occupy your home as a principal residence. No matter which payment plan you select, with the Home Keeper you will have the security of knowing that repayment is not required until you no longer live in your home—as long as you abide by your agreement with your lender to pay your taxes and insurance and to maintain your property.
Q: How is my monthly payment amount determined?
A: If you elect the tenure or modified tenure option, the amount of your monthly payment is determined by considering the following factors: your principal limit (the amount of cash available to you as a borrower) and the length of time you are expected to remain in your home, based on life expectancy. The older you are, the larger your payments are likely to be.
The following example shows monthly payments available under the Tenure Option:
Age Adjusted Property Value
$100,000 $200,000 $300,000
65 $ 112 $ 258 $ 405
75 302 639 976
85 521 1,061 1,609
(These figures are approximate and assume an 8.5 percent interest rate, financing of $2,000 in closing costs and the initial mortgage insurance premium, and the payment of a $30 monthly servicing fee.)
Q: Will Home Keeper payments affect my Social Security, Medicare, Supplemental Security Income (SSI), or Medicaid benefits?
A: HECM payments do not affect your Social Security or Medicare benefits because they are not based on the assets of the recipient. However, in the federal SSI program, beneficiaries must keep their liquid resources under certain limits. With a reverse mortgage, you can choose to suspend your monthly payments for a specified period. You may wish to exercise this option if you receive SSI or Medicaid payments, do not have an immediate need for the loan funds, and are concerned about failing the SSI asset test. Regulations vary for state-administered programs such as Medicaid, Aid for Dependent Children (AFDC), and food stamps. Therefore, we suggest that you consult a benefits specialist at your local Area Agency on Aging or the local offices for these programs to determine how HECM payments may affect your particular financial situation.
Q: Will I have to pay any fees to obtain a reverse mortgage?
A: Yes, you will have to pay a one-time origination fee and other closing costs. In addition, your lender will assess a servicing fee each month to administer your loan. You may be able to finance the origination fee and other closing costs – that is, these items may be included in your loan balance so that you do not have to pay for them in cash when you close your loan.
Q: Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
A: No. As long as you continue to occupy the property as your principal residence, maintain the property, and pay your property taxes and insurance, you can stay in your home for as long as you choose. No deficiency judgment may result from your HECM loan.
Q: Will my heirs owe anything to the mortgage lender if I die?
A: Upon your death, the loan balance, consisting of payments made to you or on your behalf plus accrued interest, becomes due and payable. Your heirs may repay the loan balance by selling the home or by paying off the Home Keeper loan so that they may keep the home. If the loan balance exceeds the value of your property, your estate will owe no more than the value of the property. No additional financial claims may be made against your heirs or estate.
Q: If my home appreciates in value during the mortgage term, who will be entitled to that money?
A: You are legally required to pay back to the lender only the outstanding balance. Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.
Q: What if I decide to sell my home?
A: If you choose to sell your home, the outstanding loan balance becomes due and payable to the mortgage lender. You can pay the loan balance with proceeds from the sale of your home, and you or your estate will receive any proceeds exceeding the loan balance.
Q: Can I sell my home to my children and continue to live in it?
A: If you sell your home to your children or any other individual, the HECM loan will become due and payable at settlement. After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owners.
Q: What are some of my responsibilities as a homeowner with a reverse mortgage?
A: To keep your real estate taxes and homeowners insurance current. And to properly maintain your home so that it’s value does not diminish.
Q: How can the HECM mortgage be used to purchase a new home?
A: The HECM for Home Purchase reverse mortgage may be used by persons 62 years of age or older to buy a home, ultimately eliminating monthly mortgage payments. This loan combines features of a home purchase mortgage and a reverse mortgage into one easy step, giving you instant access to your home equity. In most instances, this loan is used
by homeowners who want to sell their current home and buy another one that suits their needs. The lender will use the purchase price of the new home, your age(s), and the current $679,650 loan limit to determine your eligible principal limit. Depending on the purchase price of the home, you may be required to apply part of your own funds toward the purchase and cost of closing.
HECM for Home Purchase
If you currently own your home free and clear of any mortgage debt, the HECM for Home Purchase mortgage helps you buy a new house that better fits your needs. You make a small down payment with your own money and receive a reverse mortgage loan for the rest of the purchase price. There are no income or credit requirements. You and any of your co-borrowers must be at least 62 years old.
Key Features
- No borrower income limits and no credit requirements mean you may qualify for a higher-priced home. Loan qualification is based on your age and the value of the home you want to buy.
- You can lower your down payment and keep more of your cash by choosing to use all or part of the loan proceeds toward your home purchase.
- Repayment is not due as long as you occupy the home.
- There are no monthly payments.
- Your loan funds do not affect Social Security or Medicare benefits. (If you receive Supplemental Security Income or Medicaid, these benefits may be affected.)
- You do not pay back the loan until you sell your home, no longer use it for your primary residence, or pass away. Then, you or your estate will repay the cash you received from the HECM for Home Purchase mortgage, plus interest and other finance charges, to the lender. This means that any remaining equity in your home can be passed on to your heirs through the sale of the property.
- You will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property. This means no debt will ever be passed along to your estate or your heirs.
- At loan application, you must verify that you have the required funds for a down payment. This money can come from your savings, investments, or the sale of your current home.
- At the loan closing, you will need to show that you have title insurance and that a title search has been performed.
- The amount of money you get from a HECM for Home Purchase loan depends on your age, the number of borrowers and the appraised value of your home.
- You must keep applicable taxes and hazard insurance current, as well as maintain your home in good repair. The loan may become due and payable if you fail to pay property taxes and insurance or if you do not maintain your property.
- You must attend reverse mortgage counseling that explains your HECM for Home Purchase financing options.