Not all reverse mortgages are the same. The home equity conversion mortgage, insured by the federal government, is available only through a Federal Housing Authority-approved lender. For homeowners 62 years of age or older with significant equity in a home, an HECM may be an attractive idea. It's a way to supplement retirement income by allowing eligible homeowners to access a portion of the equity.
The funds received through an HECM can be used to pay off medical bills or update the home — it's a helpful financial tool. HECMs can be extremely flexible, permitting changes in the ways that seniors receive funds as their needs change over the years. Most of the loan proceeds are usually paid out over time rather than up front; there's no repayment obligation so long as the borrower lives in the house.
What type of dwelling is eligible for an HECM? Any of the following, but they must meet all FHA property standards and flood requirements:
How much loan will you get? Known as the principal limit, it's determined by such factors as:
According to the Consumer Financial Protection Bureau, you typically can take out up to 60% of your principal limit in the first year. However, if the amount you owe on an existing mortgage (or other required payments) is more than 60% of your principal limit, you can take out enough to pay off your mortgage (and any other required payments, including upfront loan fees) plus additional cash of up to 10% of your principal limit.
You can choose how to receive the money. Here are a few choices:
A reverse mortgage is a serious decision, and you should have all the facts about the loans before deciding on an HECM or other reverse mortgage product. Speak with a qualified financial professional.
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