Home Equity Conversion Mortgage

Older people may experience a lot of financial troubles and one way to cope up is by using an HECM or a Home Equity Conversion Mortgage. When funds are getting shorter and income opportunities are slowly dying with age, senior citizens can put up their home on a home equity conversion mortgage program, or typically known as a Reverse Mortgage Program, where they can borrow from their home’s equity without ever paying back – unless their homes will be sold or when the homeowner dies. As long as you live in the house, you will not be forced to vacate it or have it foreclosed. You only need to pay your property taxes, insurance, and utility bills. If you wish to leave your heir an estate, all that is needed is to pay back the loan you have received, plus interest and extra fees, to the lender.

How Can You Qualify for a Home Equity Conversion Mortgage?

To be eligible, a borrower must be 62 years old or older, who has a cash on hand to pay for the difference between the home’s selling price and mortgage amount, inclusive of the property’s closing cost. He or she must have low mortgage balance left on the home or none at all. Counseling about the home equity conversion mortgage program is also required. If you have a single family home, a one-to-four unit building where you occupy a unit, a manufactured home, a unit for development, or an FHA approved home, these properties are eligible so long as they conform to the FHA ( Federal Housing Administration ) standards. You may use parts of the loan to pay for home repairs as well. For assistance, you may call the AARP at 1-800-209-8085, or you may call HUD’s Home Counseling Information hotline at 1-800-569-4287.

How Will You Get Paid for a Home Equity Conversion Mortgage?

First of all, your loan amount shall depend on your age, the present appraised value of your property, the FHA loan limits in your location, and the present interest rate. As a rule of a thumb, you can borrow more with a lower interest rate if you are older and if your home is valued higher. You may go to the AARP website ( www.aarp.org ) and use their online calculator for you to know just how much you can borrow.

For payments, you can choose from five options: ( Tenure ) equal monthly payment as long as you live on your principal home, ( Term ) equal monthly payments for a certain time period, ( Line of Credit ) installments on your chosen amount until credit is consumed, ( Modified Tenure ) monthly payments are combined with line of credit as long as you live in the home, and ( Modified Term ) monthly payments and line of credit for a fixed length of time.

What are the Advantages of a Home Equity Conversion Mortgage?

1.No income requirements or credit check
2.You hold the title to your home as long as you live in it
3.You can choose how much you want to be paid and how you want to receive these payments
4.You don’t owe anything that’s more than the value of your home, even if you are overpaid for the worth of your home
5.Credit advances are non-taxable
6.Payment is due only when the borrower dies, sells the home, or moves to a new primary home
7.Borrower may live up to a year in a nursing home before the loan is due
8.When the loan is paid, any remaining equity will be given back to you and your heirs

What are the Disadvantages of a Home Equity Conversion Mortgage?

1.You might have troubles with qualifying for Medicaid
2.You need to be at least 62 years old to be eligible
3.You are required to attend a free loan counseling program before loan application
4.High application and closing fees
5.You may be required to pay service charges
6.Interest rates are variable to short-term indexes like T-Bills or LIBOR
7.Interest rates may only be tax deductible until loan is repaid and your heirs may be left with fewer assets
8.You are responsible for taxes, homeowners insurance, and other costs of living in your home

In the world of credit, nothing comes for free and everything has its pros and cons. On a brighter side, a home equity conversion mortgage takes away the monthly stress of having to worry about making timely payments, which is the least anyone wants to worry about when they are old and retiring. If in doubt, you can always ask for help on the best option to take to make your home equity conversion mortgage program work wonders for you. Your Home is Your Investment!

RESOURCES:

US Department of Housing and Urban Development. “ FHA’s Home Equity Conversion Mortgage Program. “ January 2009. http://www.hud.gov/offices/hsg/sfh/hecm/hecm–df.cfm

US Department of Housing and Urban Development. “ Top Ten Things to Know if You’re Interested in a Reverse Mortgage. “ February 2009. http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm

Investopedia ULC. “ Home Equity Conversion Mortgage – HECM. “ 2009.

http://www.investopedia.com/terms/h/hecm.asp

Bankrate.com. “ Reverse Mortgages Pros and Cons Work Sheet. “ 2009.

http://www.bankrate.com/brm/news/financial_literacy/borrowing_money/reverse_mortgages_work_sheet_a1.asp