More than one million FHA-insured Home Equity Conversion Mortgage (HECM) loans have been issued since their inception in 1990. HECMs account for nearly all reverse mortgages made today in the U.S.*
This useful loan option is designed to help homeowners and homebuyers age 62 and older convert some of their home equity into cash—so they can live more comfortably, with greater financial independence. Built into this financial tool are several important features and safeguards for your security and peace of mind:
1. Federal insurance
The HECM reverse mortgage is insured by the Federal Housing Administration (FHA) to protect lenders and borrowers alike. This insurance guarantees you will receive your loan proceeds as agreed upon with the lender at the closing of the loan.
2. Independent Counseling
One of the most important consumer protections built into the reverse mortgage program is the requirement that a prospective borrower must first meet with an exam-qualified, independent third-party counselor approved by the U.S. Department of Housing and Urban Development (HUD) before signing a loan application or incurring any fees. Financial counseling will give you unbiased information about the features and costs of a reverse mortgage.
3. Non-recourse feature
HECM reverse mortgage loans are “non-recourse loans.” This means that you can never owe more than the value of your home at the time you or your heirs sell your home to repay your reverse mortgage. With a HECM, the reverse mortgage debt may be satisfied by selling the home to pay the lesser of the mortgage balance or 95% of the current appraised value of the home.**
4. Non-borrowing spouse protections
If your non-borrowing spouse outlives you, there are new protections in place that will help him or her remain in the home under certain conditions.
5. Financial assessment
When you apply for a reverse mortgage, you will be required to undergo a financial assessment to make sure that your financial position (after you get the reverse mortgage) is sufficient to enable you to meet the obligations of your loan.
If you’re a homeowner age 62 and older considering a reverse mortgage and would like to learn more about reverse mortgages, please contact a Finance of America Reverse mortgage professional today.
*Source: NRMLA (National Reverse Mortgage Lenders Association) website: https://www.nrmlaonline.org/2017/06/14/annual-hecm-endorsement-chart, Industry statistics, Annual HECM Endorsement Chart.
**The home must be the primary residence and the homeowner must live in and continue to maintain property charges including property taxes, fees, hazard insurance and maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
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