FAQs

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Q: What is the difference between a regular mortgage and a HECM?
The concept is quite simple. A regular mortgage is a long-term loan paid monthly, with interest, usually for 15 or 30 years. With a regular mortgage the loan amount will decrease slightly as payments are made.  A HECM is a loan that is secured by a borrowers primary home, just like a normal/forward loan with a lien on the property. The HECM is used to access the equity, and the the loan amount will increase slightly when payments are NOT made. 

Q: What are the benefits of the HECM?

  • HECMs relieve the financial strain of one’s retirement years by eliminating mortgage payments.

  • The HECM might be able to supplement existing retirement funds.

  • This source of "income" can allow for a more comfortable lifestyle or extend one's retirement funds. 

  • If a retiree is able to parlay withdrawing from a 401(k), then associated taxes will be deferred. 

Q: What are the requirements to qualify?

  • At least one borrower must be 62 or older.  

  • Applicants must have substantial equity or own his or her home outright. 

  • The home must be the primary place of residence (at least 6 months + 1 day). 

  • Borrowers must provide evidence indicating the possession of sufficient financial resources to cover continued maintenance, homeowners insurance, property taxes, and HOAs.

Q: How can a HECM be paid back?

Repayment will typically occur either when the borrower sells his or her property, or upon his or her death. Borrowers (or those on title) can pay down their mortgage if they choose at any time with no penalty. Borrowers can also make payments as they choose.

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Q: What if the accrued interest on the mortgage exceeds the value of the home?

In a nutshell, it’s not a problem. HECM's last as long as the borrower is alive and lives in the home as a primary residence for 6 months + 1 day.  In the event of the borrower’s death, FHA would compensate the lender. The heirs do not need to make up the difference, they can simply walk away.  If the borrower changes residence, this would still hold true for them. There is a funding fee and monthly mortgage insurance which are used to cover events such as an 
 

Q: What about the heirs?

In the case of both borrower’s death or when the last person on title passes, the heirs are given the opportunity to:

  1. Pay back the loan balance if they choose to keep the home. 

  2. Sell the home and keep the equity. 

  3. If the loan balance is more than what the house is worth, the heirs have a choice to walk away from the property or they can buy the home for 95% of the appraised value.