Let’s face it, retirement can be an expensive undertaking. For most people, their bills increase, and their income decreases. For people who own their own house, reverse mortgage specialists can help alleviate some of the financial burden of retirement. These loans are also known as home equity conversions, or HECM for short. So here are three things to know about HECMs.
What Is a Reverse Mortgage?
The basic principle is centered around the equity of a property. A home’s equity is its value, minus the amount of any outstanding loans. So if a house is valued at $150,000, and $30,000 is still owed to the bank, the equity is $120,000. So what an HECM essentially does is it allows homeowners to borrow against the equity of their house, while at the same time halting any payments on the home’s note. Owners simply have to continue paying the taxes and insurance on the property. Since the loan type is designed for people in retirement, applicants must be at least 62 years old to qualify. Furthermore, the house that the loan is being taken out on must be the applicant’s primary residence.
How Can It Be Dispersed?
As discussed above, the purpose of an HECM is to help elderly homeowners supplement their income. Since every person has different financial duties, reverse mortgage specialists can work with applicants to find the best disbursement method. The first option is a lump sum, which most applicants deposit into their savings account. The second option is to establish monthly payments to the homeowner for a set number of years, or even for life. For people who have trouble handling money, this can provide a steady income. The third option creates a line of credit for the homeowner, to use at his or her own discretion. This is a wonderful choice for an applicant who has enough to handle month-to-month bills, but would not be able to pay for an unexpected expense such as a damaged car or a medical issue.
When Does The Loan Come Due?
One of the biggest perks that reverse mortgage specialists like to tout is that an HECM allows people to stay in their residences until they pass away. Along with the original borrower, any non-borrowing spouse can also continue to live in the residence, payment free, until they die, as well. In order for borrowers to stay until death, they must continue to pay property taxes and insurance, provide the property with basic upkeep, and maintain the title in their own name. When the loan finally becomes due, the heirs of the property can pay it off and keep the residence, sell the house to settle the loan, or allow the bank to sell the house.
So if you are considering meeting with reverse mortgage specialists to discuss an HECM, make sure you are properly educated on the basics of the process.