The Home Equity Conversion Mortgage is a reverse mortgage. It is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. Reverse mortgages are unlike a traditional home equity loan or second mortgage. HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

More and more financial advisors are acknowledging reverse mortgages as smart financial tools and since it only accessible to individuals over the age of 62, it has a great many advantages for people entering retirement. However, there are still several misconceptions associated with reverse mortgages and we’re here to give you the facts and set the record straight.

1. A reverse mortgage is a last resort.

It has been thought that a reverse mortgage is a last effort to get money after retirement. However, reverse mortgages come in all shapes and sizes and homeowners have the flexibility to find the right loan that works for them. A reverse mortgage is a smart tool that offers several options to make money before entering retirement. Many senior citizens use a reverse mortgage to finance medical expenses and home improvements.

2. The bank owns your home.

With reverse mortgages, the borrower does not give up the ownership of their house. Instead, they are borrowing against the value of their home’s equity. If the borrower maintains their home, pays property taxes and insurance, and follows all of the loan terms such as such as continuing to live in the home as their primary residence, they will retain ownership of their property. The title to the property does not change.

3. Heirs will be responsible for paying back the loan.

A reverse mortgage is a non-recourse loan. This means that the only collateral is the home. The lender may access the home to pay off the loan balance. What that means is if the sale of the home does not cover the loan balance, the FHA pays the difference. If the home is sold and the sale does cover the loan balance, the remaining proceeds are split among the heirs. The borrower’s family does not have to pay back the loan.

4. Reverse mortgage loans come with expensive fees and interest.

Like any conventional mortgage loan, there are fees but the fees. The fees are calculated based on a number of factors: home, loan terms, market conditions and interest rates. The rates are based on the borrower’s age, the home’s value, the property’s Zip code, any existing mortgage balance or liens, the number of expected years in the house, and life expectancy. A reverse mortgage professional can help borrowers to determine how much they will pay in interest in fees before the loan is finalized. The reverse mortgage loans are not always expensive.

5. My spouse or I could be thrown out of the house when one of us dies.

Again, borrowers retain ownership of their home and fortunately for the borrowers, the HECM has safeguards to help non-borrowing spouses as long as they remain in their homes for a certain “deferral period” after the death of their spouses and they take responsibility for the loan signed by the original borrowing and follow all of the obligations. Also for the benefit of the potential borrower, they are required to undergo third-party reverse mortgage counseling to be certain they understand the fine print before signing. Again, the loan is a non-recourse loan which means that the lender cannot collect more than the value of the home. The FHA also establishes caps on the amount of money that can be drawn during the first year of the loan to help ensure that proceeds last as long as a borrower needs them. No one is thrown out of the house when the borrower dies.

Do you qualify for a reverse mortgage? Contact the specialists at HML Investments today for more information about reverse mortgages.