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Thank you for visiting my website. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a HUD Program that is insured by the Federal Housing Administration (FHA) enabling retirees across the country to live a more enjoyable retirement. Here at Retirement Funding Solutions, our goal is to help our customers make the right, informed decision about funding their retirement.
I’M HAPPY TO ANSWER YOUR QUESTIONS.
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Here are some common examples of what a HECM can help you do:
Purchase a new home to fit your lifestyle needs
Protect your retirement portfolio
Reduce monthly expenses by paying off existing mortgage or other debts
Enhance your cash flow
Incorporate housing wealth into your retirement plan
Create an emergency fund
Increase cash to help ensure monthly bills are paid
Fund for home repairs or upgrades
Reduce the burden of out-of-pocket healthcare costs
Fund the expense for caregivers, live-in nurses, or other in-home care
Have the cash for a large expense, such as a vacation or vehicle
EDUCATION
I’M HAPPY TO ANSWER YOUR QUESTIONS.
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Home Equity Mortgage Overview
The Home Equity Conversion Mortgage (HECM) is an FHA insured reverse mortgage and is the safest and most popular type of reverse mortgage on the market. HECM’s are the only reverse mortgage insured by the federal government through the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD).
The HECM allows home-owners, ages 62 and better, to convert part of their home equity into tax-free proceeds.* There is never a required monthly mortgage payment on a HECM, and there is no pre-payment penalty if the consumer ever chooses to pay the loan back in part or in full. Repayment of the loan can never exceed the home’s value and the heir’s will never inherit a debt, unless they choose to retain the home as their own property. The borrower always retains title to the home and no repayment is required until the borrower either permanently leaves the home, fails to maintain the property or fails to pay the property taxes and insurance.
*Consult a tax specialist
Because the proceeds are a tax-free loan, there is generally no effect on Social Security or Medicare benefits. However, income-based programs may view the HECM as an additional cash flow source. Therefore, it is always best to consult an advisor when receiving benefits from an income-based program before pursuing the HECM.
The loan amount of the HECM is based on the age of the youngest borrower or eligible non-borrowing spouse living in the home, the home value, and current interest rates. Borrowers must attend HUD-certified counseling prior to applying for a HECM loan.
There are several ways to receive the funds from the HECM including:
A single lump sum disbursement
Equal monthly disbursements for as long as the consumer remains in the home
Equal monthly disbursements for a set amount of time according to the consumer’s choosing
A line of credit, in which funds are available to be drawn upon whenever the consumer chooses
A combination of monthly disbursements and a line of credit
*Fixed rate mortgages are limited to the single lump sum disbursement option. The disbursement of mortgage proceeds during the first twelve-month period is subject to an initial disbursement limit.
Line of Credit Explained
One of the options for borrowers to receive proceeds from the HECM is a Line of Credit. Unlike a traditional HELOC, which can be reduced or closed at any time the bank chooses, the unused funds in the line of credit are guaranteed to be available to the borrower as long as they live in the home.
In addition, the HECM line of credit option has a growth rate which increases the unused amount of funds in the line automatically. This provides an easy way to tap into the borrower’s equity without having to refinance again. The most unique feature of the growth rate on the line of credit, is that it also happens to be the same rate that is accruing interest against the loan balance. As long as there are minimum funds available in the line of credit, they will grow at that rate. If the borrower wishes to pay off the HECM loan balance, then the unused portion of the line of credit will dissolve as equity.
Eliminate a Mortgage Payment
If a borrower has a current mortgage, the HECM will pay off the current mortgage debt and thus eliminate a mortgage payment entirely since no mortgage payments are required on the HECM loan. The borrower is only responsible for paying property taxes and insurance, maintaining the property and making any repairs as were required as part of the loan terms.
*The payoff of an existing non-HECM lien using HECM proceeds is only permitted if it has been in place longer than 12 months or resulted in less than $500 to the borrower, whether at closing or through cumulative draws.
Monthly Income
The HECM product can be a great source of additional revenue for consumers and supplement monthly income. A popular disbursement choice for many consumers is the tenure payment option. This provides equal monthly disbursements to the borrower for as long as they remain in the home. The monthly disbursements are guaranteed to continue throughout the borrower’s lifetime regardless of home value increase or decrease.
A term payment will provide equal monthly disbursements to the borrower for a set amount of time that the borrower chooses. This provides a slightly higher monthly amount but will cease at the end of the term. Of course with any payment option selected (except the lump sum option), the borrower can contact the servicer of the loan at any time to request a plan change for a small fee.
Borrower Protections
Home Equity Conversion Mortgages are insured by FHA, made possible by the payment of MIP (mortgage insurance premium) through the loan, this provides a non-recourse feature for the consumer.
Aspects of the non-recourse feature are as follows:
The consumer will not owe more than the home is worth at the time the loan is paid back, either by death or sale of the property or failure to pay taxes
The home is the only asset that can be used to pay the loan balance.
This prevents the lender from using any other accounts belonging to the consumer or to the heirs (estate) to recoup the loan balance. (e.g. Even if the home was in a living trust that still has millions in available other assets in the trust, the home value is still the maximum amount that can be used to recoup the balance. Thereby leaving the other assets untouched.)
The non-recourse feature also provides benefits to the heirs of the property.
If an heir inherits the property, the heir may choose to either:
Sell the home and the proceeds of the sale will pay back the loan with any remaining equity being given to the heir
Refinance the home into their name and pay off the existing HECM balance
If the heir refuses ownership rights to the home completely, the servicer will foreclose on the home in order to recoup the outstanding loan balance, with no adverse effect on the heir’s credit
Potential deferred interest deductions available to the heirs at time of sale.
Please consult your tax professional
HECM Loan Costs
Loan costs are similar to a traditional FHA mortgage. There are 3rd party fees, mortgage insurance made payable to HUD and loan origination fees. Contact me, a licensed Retirement Funding Solutions specialist, to review your options.
PRODUCTS
There are various loan program options available to you through Retirement Funding Solutions. Our goal is to provide the very best in price, product and service, so that you can make the right, informed decision about whether a Home Equity Conversion Mortgage meets your retirement needs. While other lenders might charge a monthly servicing fee; we do not charge any servicing fees on any of our HECMs.
We offer fixed rate, variable rate and Jumbo reverse mortgages.
Fixed Rate
This HECM option provides the security of a fixed interest rate for the life of the loan. It may be a great option when taking a full draw to pay off a large mortgage or for a new home purchase with a HECM for Purchase.
Variable Rate
We offer both annually and monthly adjustable rate mortgages (ARMs). Similar to traditional ARM’s, your initial interest rate is comprised of a fixed margin and an index that will adjust on either an annual or monthly basis. All variable loans have a lifetime interest rate cap.
The benefit of a viable rate HECM is that it provides the greatest flexibly on how you elect to take your loan proceeds. Variable HECMs allow you to set up ongoing monthly term or tenure payments and/or set up a growing line of credit.
Unique Benefits of the HECM Line of Credit:
This federally insured LOC cannot be frozen, cancelled or reduced, even if home values fall.
All of the un-used credit grows every month, based on the Credit Line Growth Rate.
The Credit Line Growth Rate is tied to the interest rate. If interest rates rise, the growth rate on the LOC will also increase, offering greater borrowing power
Since this is a HECM, debt service is optional. Your can defer all principal and interest until the borrower(s) permanently vacate the home**
If the client chooses to make payments at any time, the available credit increases accordingly (just like a traditional HELOC).
JUMBO Reverse Mortgages
This jumbo reverse mortgage offers greater lending limits and loan amounts when compared to the traditional HECM loan. This loan is only available with a fixed rate and may be a good fit for higher value homes.
PLEASE CONTACT ME FOR MORE DETAILS AND/OR QUALIFYING INFORMATION FOR ANY OF THE ABOVE PRODUCTS.
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BUYING A HOME
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