The name HECM reverse mortgage comes from the term home equity conversion mortgage and is the program or product from the U.S. Government. It is about thirty years old and getting more and more popular.
The target is to transform a part of the home equity into cash money according to the payment schedule, which a senior has set. With the normal mortgage a borrower can lose his home, if he cannot follow the payment plan, but there is no such danger with the HECM reverse mortgage. The guarantees are the equity of the home and the obligatory insurance. The borrower will never lose other assets than the value of the home.
1. The Federal Insurance.
Because the idea is to give more disposable cash to the seniors against the equity of the home, the home will be the main guarantee. However, in some cases it can happen, that the selling price of the home does not cover the total amount of the capital, interests and the costs. In that rare case the missing part will be taken from the mortgage insurance, which a borrower must take, when he signs the contract.
2. The Qualification.
The whole system has been built around the equity of the home. So if a senior is age 62 or over, owns a home, where he lives permanently, he or she will qualify. Altogether three seniors can be borrowers, but all must fulfil the qualifications. Most home types are accepted. The federal counselor can tell more about the details.
3. When To Take It?
The HECM reverse mortgage is a serious product, which is not meant to pay the Caribbean Cruise. Most seniors, who have taken it, use the money to pay the increased medical bills, to pay the home repair or to buy a home to a child. However, a senior can use the money as he will, there is no reporting.
4. The Credit Score And The Income Statement.
Let us go back to the basic idea of this loan. It was to arrange cash money to the seniors against the home equity and the deal includes also an obligatory mortgage insurance. This means, that the lenders are not interested about the incomes or the credit scores of the seniors, because they are useless in this context.
5. The Disadvantages.
The most often mentioned disadvantages are the high upfront costs and the ceiling of the loan amount. The biggest costs are the fee from the obligatory mortgage insurance, which is 2 % to the home value. The ongoing annual premium is 0.5% to the home value. The maximum loan amount is $ 625.000.
About the Author:Juhani Tontti, B.Sc., Marketing. For more information about the HECM reverse mortgage and about the reverse mortgages for seniors , please visit: reverse mortgages how they work
