A reverse mortgage is a loan for seniors age 62 and older. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, and make home improvements and more. You can receive additional free information about reverse mortgages at the National Council on Aging at (800) 510-0301 or downloading their free booklet, "Use Your Home to Stay at Home", a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!
Frequently Asked Questions
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.
2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, you must be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
3. Can I apply for a HECM even if I did not buy my present house with FHA mortgage insurance?
Yes. You may apply for a HECM regardless of whether or not you purchased your home with an FHA-insured mortgage.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. What are the differences between a reverse mortgage and a home equity loan?
With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments. With a reverse mortgage, you are required to pay real estate taxes, utilities, and hazard and flood insurance premiums.
6. Will we have an estate that we can leave to heirs?
When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.
7. How much money can I get from my home?
The amount varies by borrower and depends on:
- Age of the youngest borrower or non-borrowing spouse
- Current interest rate
- Lesser of appraised value, or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Initial Mortgage Insurance Premium
If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.
8. How do I receive my payments?
For adjustable interest rate mortgages, you can select one of the following payment plans:
Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence,
Term - equal monthly payments for a fixed period of months selected,
Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until the lijce of credit is exhausted,
Modified Tenure - combination of line of credit and scheduled monthly payments for as long as you remain in the home,
Modified Term - combination of line of credit plus monthly payments for a fixed period months selected by the borrower. For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan,
Single Disbursement Lum Sum - a single lump sum disbursement at mortgage closing
To learn more and research your eligibility, follow these links: