Reverse Mortgage (HECM)


What is a Reverse Mortgage?

A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration (FHA)1 insured loan which enables you to access a portion of your home’s equity without having to make monthly mortgage payments.

If you are 62 years of age or older and have sufficient home equity, you may be able to get the cash you need to: 

•Pay off your existing mortgage

•Continue to live in your home and maintain the title

•Pay off medical bills, vehicle loans or other debts 

•Improve your monthly cash flow 

•Fund necessary home repairs or renovations 

•Build a “safety net” for unplanned expenses

•Save for retirement

Advantages to a Reverse Mortgage for a Purchase

•Relocating to an active adult housing community

•Own two homes - rent out your current home or use as a second home

•Buy a home closer to family, friends, or relatives

•Lower monthly cost of living

•Use as a monthly cash flow tool

•Relieve existing debt and payoff existing mortgage


• Youngest titleholder must be 62-plus years old

• Purchased home must be a primary residence occupied by the borrower(s) within 60 days of loan closing

• Property must be a single family residence, 2-4 unit dwelling1, a FHA approved condo, or a FHA qualified manufactured home

• Borrower must complete a third-party HUD approved counseling session

• Borrower must meet the financial eligibility criteria as established by HUD

Borrower Protections

• Non-recourse loan (FHA-insured)

• Independent Counseling (HUD approved)

• Financial Assessment

• Life Expectancy Set-Aside (LESA)

• Capped Interest Rates

• Full Disclosure of Costs

• No Prepayment Penalty

• Non-Borrowing Spouse Protections

• Right of Rescission

Misconceptions on Reverse Mortgages

Myth # 1: The lender owns the home

Reality: Borrower retains title to home, no one is added 1

Myth #2: The home must be free and clear of existing liens

Reality: HECM is designed to pay off existing liens. There must be sufficient equity to pay off the existing liens.

Myth #3: Loan proceeds are taxed

Reality: HECM proceeds are not income, therefore not taxed 1

Myth #4: There are restrictions on how to use proceeds

Reality: Any proceeds remaining after Paying off liens can be used however the borrower wants with no restrictions

Myth #5: Only poor people need HECMs

Reality: HECMs provide an opportunity to diversify a portfolio and help ensure against overdrawing existing retirement assets

1 Borrower must still live in the home as their primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Also, note that if they fail to meet the loan obligations, the lender could call the loan due and payable, and may even result in foreclosure.

Disbursement Options

With a fixed-rate HECM loan, the borrower can receive the cash in a lump sum. With an adjustable-rate (ARM) HECM loan, the borrower can select:

• Lump Sum

• Line of Credit

• Monthly Disbursement

• Combination of all three 

The funds available may be restricted for the first 12 months after loan closing, due to HECM requirements. The borrower may need to set aside additional funds from loan proceeds to pay for taxes and insurance.


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