Are you wondering how reverse mortgage works? There are three kinds. One is the single-purpose reverse mortgage offered by non-profits and some local government agencies. Another is the proprietary reverse mortgage from private loans, and the other is the home equity conversion mortgage or HECM, which we will be focusing on today.
What is a home equity conversion mortgage?
The Federal Housing Administration (FHA) insures the home equity conversion mortgage. Conversion mortgage or reverse mortgage gives the seniors (62 years old and up) the ability to convert their homes’ equity and turn it into cash.
Depending on the FHA set limit, the amount that can be borrowed will be based on your home’s appraised value. Home equity conversion mortgage is popular because it usually offers lower interest rates for borrowers than a privately sponsored reverse mortgage.
The basic requirements for you to avail of the FHA sponsored home equity conversation mortgage are the following:
- You must be at least 62 years old.
- The property you plan to use for your HECM should be your principal residence. This means that you stay in that home, and it is not your secondary home or vacation house.
- You can pay on time the different property charges you need to like the property taxes, homeowner association fees, insurance, etc.
- Pay federal debts on time.
- Attend a consumer information session with a HECM counselor that is accredited by the Housing and Urban Development
HECM loans are unlike the usual mortgage, where you need to repay monthly, but it will be paid in full when you pass or move out of the property you used as collateral. But remember, you may be asked to pay the mortgage sooner if you do not take care of the property, so make sure that it is kept in good condition.
Do you think that this is something that you would like to avail? Let us know how we can help you get to a decision.
