A Home Equity Conversion Mortgage (HECM) is a reverse mortgage program insured by the Federal Housing Administration (FHA). It allows homeowners aged 62 and older to convert part of their home equity into cash or a line of credit.
Homeowners must be at least 62 years old, own the property outright or have substantial equity, occupy the property as their primary residence, and have no delinquent federal debts.
Borrowers are not required to make monthly mortgage payments but must keep up with property taxes, homeowner's insurance, and home maintenance.
The loan is due when the last surviving borrower passes away, sells the home, or fails to comply with the loan terms.
The amount that can be borrowed depends on the borrower's age, home value, current interest rates, and the chosen HECM product.
Borrowers can choose to receive funds as a lump sum, line of credit, monthly payments, or a combination of these options.
The HECM is a non-recourse loan, meaning borrowers or their heirs are not personally liable if the loan balance exceeds the home's sale value at maturity. FHA insurance covers any shortfall.
As payments are received, the loan balance increases, and home equity decreases over time.
Potential borrowers must undergo counseling with an FHA-approved counselor to ensure understanding of the reverse mortgage.
This program provides older homeowners an opportunity to access their home equity without selling their home, but it's crucial to understand its impact on personal finances and estate planning.