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What is a Reverse Mortgage?

A reverse mortgage is a loan against your equity in your house that gives you access to cash without having to repay the loan while you are living there.

A Home Equity Conversion Mortgage (HECM) is a reverse mortgage that is insured by the Federal Housing Administration (FHA). With a HECM you several options for receiving payments, without limitations on how you use the money.

To be eligible for a HECM loan, you must be 62 years old or older. You need to own the house free and clear. The house must be your primary residence.

Eligible Properties include:

  • Single family detached homes.
  • Townhouses.
  • Two to four unit single family homes with one unit occupied by the borrower.

A HECM loan allows you to convert a portion of your home's equity into cash. You do not have to repay the loan for as long as you live in your home. However, a lien will be placed on your property, which will be security for the HECM loan. The homeowner must continue to live in the house and must continue to pay property taxes and insurance.

You will work with a lender (mortgage lender, bank or credit union) to obtain the HECM loan. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less.

You have several options for receiving HECM payments:

  • A regular monthly cash advance for a specific number of years that you select - Term plan.
  • A regular monthly cash advance for as long as you live in your home - Tenure plan.
  • A creditline of a specific dollar amount, withdrawn at unscheduled times or in a lump sum payment in amounts of your choosing until the credit line is exhausted.
  • A combination of these payment plans.

Closing costs that are standard with all mortgages are usually financed with proceeds from the HECM loan. Such as an origination fee, third-party closing costs, a loan servicing fee, and interest. Mortgage insurance premium is also assessed on all borrowers to protect the lender. This protection makes lenders more willing to offer HECM loans. Also, FHA will pay you what you are owed if your lender is unable.

 

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