The Top Five Reverse Mortgage Myths, Debunked
Get the facts before deciding if a Home Equity Conversion Mortgage is right for you.
Homeowners age 62 and older who are looking for a way to secure their financial future have access to HECMs (Home Equity Conversion Mortgages), also known as reverse mortgages. However, there is a great deal of misinformation about how these loans work and who they can truly benefit.
The bank will own your home.
- You continue to retain full ownership of your home like any other type of home mortgage product.
- Any maintenance or improvement decisions are yours to make as they always have been.
- Simply continue to pay your property taxes and homeowners insurance.
Your home must be mortgage free to be eligible.
- Think of a HECM like any mortgage refinancing. Your existing mortgage balance would be paid off.
- Because of how a HECM is structured, any existing mortgage balance would need to be in the range of 40-60 percent of your home’s value.
- At age 62 the existing mortgage needs to be around 40 percent.
- At age 75 the existing mortgage needs to be around 60 percent.
Only people with financial difficulties need HECM
- Actually, it can be a huge added tool in your retirement tool chest.
- Can provide additional funds not previously accessible to you.
- Pay off outstanding debts, eliminating those monthly payments.
- Working with your financial planner, a HECM can be used to help extend your retirement assets.
Your children/estate will have to pay off the HECM.
- Your children/estate will never have to repay any more than the current value of the home at the time it’s sold.
- If the balance of the HECM is less than the value of the home, then the remaining proceeds would be an asset of the estate.
- The structure of a HECM guarantees that the children/estate will NOT be left with any debt to pay on your home.
I’ve got a HELOC, I don’t need a HECM
There are some major differences between these two mortgage loan products:
- HELOCs require a monthly payment.
- HECM LOCs have no monthly payment requirements.
- HELOCs have a fixed line of credit that will never increase.
- HECM LOCs will continue to become larger over time.
- HELOCs can be decreased or frozen.
- HECM LOCs can never be decreased or frozen.
Disclaimer: This material is not from HUD or FHA and has not been approved by HUD or a government agency.