HECM Loan – Reverse Financial

HECM LOANS

FUNDAMENTALS

What is it?

A HECM (Home Equity Conversion Mortgage) is a type of reverse mortgage that is backed by the FHA and enables eligible homeowners who are 62 years of age or older to obtain a portion of their home's equity as a lump sum, line-of-credit, monthly cashflow, or any combination of these, without the need to sell their home or be burdened with a monthly payment other than the property taxes, insurance, and HOA (if applicable).

The loan amount can be utilized as per the borrower's preference, be it to improve their retirement, renovate their home, or pay off monthly expenses. The borrower has the freedom to use the loan proceeds as they desire.

How does it work?

Ownership:

With a reverse mortgage, the borrower does not give up ownership of their home and retains the title.

Equity:
The borrower can tap into the equity they've built up over time.

FHA Backing:
HECM reverse mortgage loans are backed by the Federal Housing Administration (FHA).

Security:
The home is the only asset that secures the loan, providing peace of mind.

Mortgage Insurance Premiums:
MIPs are required to be paid at closing and throughout the loan's duration. The upfront MIP is based on the home's appraised value or a maximum of $822,375, and the ongoing MIPs are calculated using the outstanding loan balance each month.

PROTECTION FOR THE
BORROWERS AND THEIR CHILDREN

Fair Market Value:

The borrower(s), nor their estate, are obligated to pay more than the fair market value of their home. What this means…if the loan balance exceeds the home's value, the FHA will reimburse the lender for the difference when the property is sold, thus not burdening the heirs nor the estate for any balance still owed. Also, if the heirs choose to keep the property in this situation, they only need to pay 90% of the homes appraised value or the remaining balance of the home, whichever is less.

Insurance:

The FHA insures payments made to the borrower by the lender if a monthly payout if chosen, and if the lender can no longer make payments, the FHA will step in.

Ownership:

One of the most common misconceptions of the Reverse Mortgage is that you no longer own the home.

This is NOT the case as you are the one who holds title and listed on the deed. The lender is simply a lien holder, just like a regular forward mortgage.

Counseling:

To ensure borrowers are protected, they must receive counseling from an independent HUD-approved third-party counselor before incurring any loan-related costs (other than the counseling fee).

Taxation:

Although proceeds from a reverse mortgage are not subject to personal income tax, it's recommended that borrowers seek tax advice to understand how the proceeds may impact government assistance needs-based programs such as Medicaid. It should not affect your social security nor Medicare as well. In fact, talk to Brian about how a Reverse Mortgage can be used to offset certain tax consequences like IRA rollovers.

info@reversefinancial.com

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www.reversefinancial.com is a privately owned and maintained website by Brian Bailey who specializes in residential mortgage loan financing and is not a government agency. The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Patriot Pacific Financial Corp or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.

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