Home Equity Conversion Mortgages (HECM also known as Reverse Mortgages)

A reverse mortgage is a type of home equity loan that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.
Reverse mortgages are typically catered towards older homeowners, but they have also become a great retirement planning tool for many homeowners.
This type of mortgage does not need to be repaid until the borrower passes away, sells the home, or permanently moves out.
The Borrower must maintain the house and pay property taxes and homeowners insurance. There are several types of Home Equity Conversion Mortgages (HECM), but the type we recommend is a type of reverse mortgage insured by the US Department of Housing & Urban Development’s Federal Housing Administration commonly known as the FHA.

How do reverse mortgages work?

Unlike a traditional mortgage that borrowers pay back each month, a reverse mortgage makes payments to borrowers. Borrowers can get these payments in several ways: (1) a lump sum, (2) as regular monthly payments, (3) as a line of credit, or (4) as a combination of monthly payments with a line of credit.

There are several factors that determine the amount of funds you can receive from a reverse mortgage, such as your age, value of home, and interest rate.

Who would benefit from a reverse mortgage?

A reverse mortgage makes senses for individuals who:

  • Are age 62 and older who own a home or have small mortgages.
  • Don’t plan to move.
  • Can afford the cost of maintaining their home.
  • Want to access the equity in their home to supplement their income or have money available for a rainy day.

What are the advantages of Reverse Mortgage?

  • Does not require monthly mortgage payments for the loan principal and interest from the borrower. The borrowers are required to pay the real estate taxes and homeowner’s insurance and maintain the property in good condition.
  • Proceeds can be used to pay off debt or settle unexpected expenses.
  • Funds can improve monthly cash flow.

Simple facts about the Home Equity Conversion Mortgage, commonly called a Reverse Mortgage:

• The loan is designed to provide money from the equity of your home without the burden of loan payments.

• The Title remains in your name. The Bank DOES NOT own your home. There is a Trust Deed just as with any other real estate loan.

• Even if you use all the money you qualify for, you can stay in your home the rest of your life.

• The loan only comes due, and must be paid off, if you (or your spouse) do not occupy the home as your primary residence. The loan’s purpose it to provide a home for the rest of your life.

• There are no mandatory monthly loan payments. To provide for this the interest amount will be added to the loan amount each month so the loan gets a little bigger each month.

• Of course, you must pay the taxes, insurance, HOA if any, and for home maintenance, as with any loan.

• When you pass, the home goes to your heirs. They have the option to sell or keep the home by paying off the loan, and they have ample time to decide. All remaining equity over the loan balance goes to your heirs.

• Allows for conversion of some home equity into cash without moving or selling.

• Independent counseling is required before application can be taken, this is to protect the borrower.

• Safe – highly regulated by HUD, with recent changes for more protection.

• Federally insured by the FHA.

• The money received is usually tax-free.

• All remaining equity, the amount over the loan, goes to you, your estate, or your heirs, never to the bank.

• Minimal credit qualification requirements.

• Minimal income qualification requirements.

• Non-recourse loan – If there is a downturn in the real estate market, and your home value declines below loan amount, you or your heirs will not owe the difference.

• Social Security and Medicare benefits are NOT effected.

• Not locked in — you can move, sell, or repay the principal balance at any time – no prepayment penalty.

Lynn Chase is a licensed Colorado Mortgage Loan Originator (number 100014632) and Nationwide Mortgage Licensing System number 1651156.

Lynn is the founder and broker-owner of The Commercial Loan Arranger, LLC,  licensed by the State of Colorado, and is doing business under the registered trade name of the Age In Place Mortgage Company. The company Nationwide Mortgage Licensing System number NMLS #1790945

The company headquarters is located at 913 Dancing Horse Drive, Colorado Springs, Colorado 80919, and Lynn can be reached at (719) 302-5508 or Lynn@AgeInPlaceMortgage.com

© Copywrite by Professor Lynn Chase