Ask the Expert : 5 Things You Need to Know

When Considering a Reverse Mortgage

Reverse mortgage loans, also known as Home Equity Conversion Mortgage (HECMs), are not just for those who didn’t sufficiently plan for retirement. In fact, it is wise to take out a reverse mortgage if you are at least 62-years-old, especially if you don’t necessarily need the money. William (Bill) Smith, Sr., a Reverse Mortgage Specialist and General Manager of Reverse Mortgage West, a California reverse mortgage broker, shares five HECM facts you need to know:

  1. There are Many Ways to Use HECMs
The financial benefits of HECMs and the resulting tax-free proceeds are plentiful. You can use a portion of the loan to pay off an existing mortgage and increase your monthly cash flow. You can also supplement your monthly income for a set number of years or for as long as you live in your home. You can also use your HECM to purchase a new home without monthly payments and add additional cash to your savings.
  2. There is Never a Better Time Than Now
Initial set-up fees for reverse mortgage loans have dropped considerably since 2011. It is now an ideal time to obtain an HECM as current mortgage interest rates are remarkably low. The lower the rates, the more you can borrow against your home equity. However, interest rates are never stagnant. If they rise in 5-10 years, you won’t be able to borrow nearly as much on your home.
  3. HECM Benefits Any Retiree
You can borrow as early as age 62 and take the mortgage in the form of a credit line rather than all-out cash. You can also borrow against the credit line at any time but you don’t have to take the money now. More importantly, this credit line continues to grow every year, which significantly increases your future borrowing power.
  4. It is Not Like Your Typical Loan
With HECMs, you don’t have to make monthly payments like you would with a regular loan. The mortgage doesn’t come due until you leave your home permanently. When the house is finally sold, the proceeds first go toward repaying what you borrowed and the accumulated interest. Money that is left over goes directly to you or your heirs. If the house sells for less than the loan amount, the Federal Housing Administration, which insures HECMs, covers the lender’s loss.
  5. HECMs Provide Protection
HECMs enable you to provide for unfunded long-term care by setting up a reverse mortgage line of credit. Additionally, the 2013 Reverse Mortgage Stabilization Act enables the Department of Housing and Urban Development (HUD) to assess whether potential borrowers are financially eligible or not. This prevents you from using too much equity prematurely and allows spouses under the age of 62 to stay in the house on the occasion of their partner’s passing.