What constitutes a Reverse Mortgage aka HECM?
Have you seen the commercials on Television about Reverse Mortgages? Do you believe that this type of Mortgage should be suggested to an older homeowner?
Before considering Reverse Mortgages, lots of reading and learning must take place to understand the following:
- A HECM, also known as a home loan, does not need repayment as long as the homeowner lives in your home.
- The HECM can be paid in one lump sum, monthly, or at intervals in the amounts agreed upon.
- A HECM, which includes computed interest, ends when the homeowner / mortgagee sells his home, permanently moves, or dies.
- Because the homeowner makes no monthly payments, the amount owed grows larger over time. Most States protect the homeowner by passing laws. These laws state that a homeowners can never owe more than the home’s value at the time of repayment.
- Homeowners who have a Reverse Mortgage will continue to own their home and must continue to pay their property taxes, insurance, and repairs.
For those who own a home, you know about traditional mortgages. A bank or institution provides money to buy the residence and repayment takes place every two-weeks or every month. The bank or institution profits by charging an interest rate on the funds borrowed.
There is a simple difference in a Mortgage and a Reverse Mortgage. During the months and years of paying a regular mortgage, the homeowner gains equity. Reverse Mortgages do just the opposite. They remove the homeowner’s equity by giving the Homeowner the monetary value for the worth of the residence.
Receipt of a Reverse Mortgage
Upon receiving a Reverse Mortgage, a bank or institution will pay the homeowner an amount based on the equity of the residence. Those in the Mortgage business refer to these types of Mortgages as Home Equity Conversion Mortgages or HECMs. This is due to the fact that when one obtains a HECM, the homeowner converts the home equity into an income source.
Types of HECM Mortgages
- Some State and Local Governments provide the least expensive HECM Mortgages. These loans provide for a specific purpose, such as paying for home repairs or property taxes.
- Some banks and institutions permit the use of funds received from a HECM Mortgage for any purpose the applicant desires.