What is a Home Equity Conversion Mortgage?
It’s a mortgage that allows homeowners 62 years and older to access a portion of the equity in their homes for use in retirement.
What are the Benefits of a HECM Loan?
With a CrossCountry Mortgage HECM you can:
- Stay in your home — you don’t need to sell it to access your funds.
- Choose an adjustable or fixed-rate loan.
- Receive funds from an adjustable-rate mortgage as a line of credit with a growth factor, lump sum, monthly payment, or a combination.
- Make the equity you’ve built up over years of mortgage payments work for you.
- Maintain or establish financial self-reliance.
What's the Difference Between a HECM vs. Reverse Mortgage?
A home equity conversion mortgage (HECM) is insured by FHA that allows those age 62 and older to tap into a portion of their equity. President Ronald Reagan signed the law in Feb. 5, 1988, and the first HECM originated in 1989.
A reverse mortgage is an investor’s proprietary product. The first one originated in 1961 in Portland, ME. Today’s proprietary or jumbo products are available to those age 60 and older.
Though both products have similar consumer safeguards, eligibility, and guidelines. The biggest difference is that the HECM follows the FHA’s national maximum claim amount, which for 2021 is $822,375. The Reverse Mortgage has up to $4 million loan amounts.
Both products allow borrowers to tap into a portion of their equity that they have worked their whole life to achieve.
The age of the youngest borrower, the expected interest rate, and the home value/max claim amount are the three factors that determine which product eligibility for a borrower.
Eligible Borrowers and Requirements of a Reverse Mortgage
You must meet the following criteria to be eligible for a reverse mortgage:
- Be at least 62 years old.
- Attend a HUD approved counseling session (available at little to no cost) and receive a certificate of completion required during the application process.
- Live in the home as your primary residence.
- Current mortgage balance must be low enough that it can be paid off with the HECM proceeds.
HECMs follow FHA property eligibility standards, so your home must be one of the following:
- Single family home
- 2–4 unit home
- An FHA-approved condominium
- Manufactured housing (must be on a permanent foundation)
Reverse Mortgage Considerations
Before you apply for a HECM, you must first consult a HUD housing counselor. This will help you determine whether a HECM is right for your situation. Contact us for a list of counseling agencies.
How Repayment Works
A HECM uses your home equity to provide you with proceeds. The mortgage becomes due when you pass away, sell your home, or move out. If you pass away, your heirs can pay the loan by selling the home or by refinancing the HECM.
You must pay property taxes and homeowner’s insurance. You must also keep the home in good condition.