Home Equity Conversion Mortgages

• Home equity conversion mortgages, often called reverse mortgages, offer a way for seniors to supplement their retirement income without adding to their monthly debts. Traditional cash-out refinances or home equity lines of credit, known as HELOCs, allow homeowners access to their equity. The key difference is that traditional loan types require monthly payments. If the homeowner needs $50,000 of equity, she may not be able to afford the monthly loan once the $50,000 has been used. She might be able to obtain the $50,000 through an HECM and not owe any monthly payments.
  
  

Qualifying for a HECM

• You must speak with a HECM counselor and receive free or low-cost HECM consumer information. You must live in the home as your primary residence. If you do not occupy the home as your primary residence, then the home is not eligible for the HECM program. Your home does not have to be paid off. You do need equity in your home, however. It does not matter what type of loan you currently have. The lender cannot require you to have a current FHA loan. Since no payments are required, you do not have to document your income to qualify.
  
  

Payment Amounts and Types

• How much you receive depends on several factors. The youngest borrower's age determines the expected number of payments. The loan's interest rate affects how much can be received. The value of the home is determined by the lesser of the appraised value and the HECM mortgage limits for your county. The type of mortgage insurance you choose also has an effect on the loan proceeds. You may receive your payments in one of five options. Tenure provides equal monthly payments for life. Term provides equal payments for a set period. A line of credit allows you to access the equity whenever you want for however much you need, up to the credit line maximum. Modified tenure combines a line of credit with regular lifelong payments. Modified term combines a line of credit with equal monthly payments for a fixed time.
  
  

Repaying HECMs

• HECM notes become due and payable once the homeowner dies, permanently moves into another primary residence or moves into another residence for 12 consecutive months. This includes living in a nursing home or assisted living center for more than 12 months. In addition, the loan becomes payable if the property falls into disrepair and is not maintained, or the homeowner does not pay the property taxes, required insurances or homeowner's association dues.