How does a HECM line of credit differ from a home equity loan or line?

There are very significant differences. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is opened. To qualify for such a loan, you must prove you have enough income to make those payments and your credit typically needs to be excellent. If you fail to make the monthly payments, the lender can foreclose and you can be forced to sell your home. In addition, you usually have access to the money only for a set period of time, only a few years. Your payments can increase significantly if interest rates rise and the amount available to you can be reduced by the lender.

With a HECM line of credit, you do not repay the loan as long as you continue to live in your home, pay your property taxes and insurance and keep the home in good shape. Your credit score is not a factor, although credit can be. You have access to the funds as long as you remain in the home and follow the terms.

Who is eligible for a Home Equity Conversion Mortgage Line of Credit?

You, and any co-borrowers must be at least 62 years old and have some equity in your home now. Your home must be a 1-4 family house or an FHA approved condo. You will participate in a mortgage counseling session from with a HUD-approved counseling agency. Family members can also attend these counseling sessions, which can be done in person or over the phone. A Life Estate situation is permissible, so your children can also be on the deed if you choose (they are not borrowers). We will evaluate your credit and cash flow for underwriting purposes.

What types of plans are available with the HECM loan?
  • You may receive guaranteed equal monthly payments for as long as you remain in the home.
  • You may receive equal monthly payments higher than a tenure option, which will last for a fixed period of time. This lets you choose a higher monthly payment, but it will only last for a certain time period.
  • With a Line of Credit option, you may draw cash at times and in the amounts of your choosing, up to the maximum amount available. Your unused portion of the line will also grow over time.
  • You may choose to take money as a lump sum payment. • Or you can combine any of these options to tailor a plan just for you.
Will the money I receive affect my Social Security, Medicare or Medical benefits?

Loan payments to you do not affect your Social Security or Medicare benefits because those benefits are not based on the income or assets of the recipient. If you are collecting benefits from another asset based program, such as Medicaid, please consult your financial or Medicaid professional. Funds received from a reverse mortgage are not considered income and are therefore not taxable. Please consult your tax advisor for more details.

Will I have to pay any fees to obtain a HECM line of credit?

Yes, you will have to pay closing costs which include an origination fee, counseling and appraisal fee, normal mortgage closing costs, and a mortgage insurance premium. Typically you will be able to include almost all closing costs into the loan with little or no out of pocket expense.

Can I be forced to sell my home if I owe more that the value of my home?

ABSOLUTELY NOT. As long as you occupy the property as your principal residence and follow all the other rules such as paying your property taxes and insurance, you cannot be forced to sell or vacate the property. This is true even if the total of the mortgage payments to you exceeds the value of the property. No deficiency judgment may result from your reverse mortgage loan since it is a nonrecourse loan. FHA insurance covers any further financial obligation to the lender.

Do I have to make monthly mortgage payments on this loan?

Great question! This is a loan that was designed for senior homeowners. YOU decided if you want to make a monthly payment at all. The actual program was designed so the there are no minimum monthly payments required, but you can make them as you see fit. You can make a payment based on a traditional mortgage, one for interest only, or even just a small payment. This allows you to have full control over the loan balance for your home at all time. and of course, you don’t have to make any payments if that fits your financial situation better.

If my home appreciates in value during the mortgage term, who will be entitled to that money?

You always get the additional appreciation. You are required to pay back to the lender only the outstanding loan balance. Any money remaining after the mortgage is paid goes to you or your heirs.