About HECM Loans


Overview

What is a Home Equity Conversion Mortgage (HECM)?

What is the difference between a HECM loan and a home equity loan?

Is any home eligible for a HECM loan?

Benefits

Does the borrower have to make monthly mortgage payments?

Does the borrower still own their home with a HECM loan?

How much does it cost to get a HECM loan?

Does a HECM loan affect a borrower’s eligibility for Social Security or Medicare benefits?

HECM Loan Proceeds

How much money can the borrower receive?

How can the borrower receive their money from a HECM loan?

Does the borrower have to pay taxes on the money they get from a HECM loan?

Are there any restrictions on how the loan proceeds can be used?

What are the out of pocket costs?

Does a HECM loan affect a borrower’s eligibility for Social Security or Medicare benefits?

Loan Repayment

Does the borrower have to repay a HECM loan?

Will the borrower ever have to pay more than the home is worth?

What happens to the borrower’s home when they pass away?

Overview


What is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is a loan that allows you to access a portion of your home equity and convert it into tax-free 1 retirement funds. With this type of loan, you maintain the title to your home. The loan typically becomes due when the last borrower(s) permanently leave the home. Provided the home is sold to repay the loan, the borrower will never owe more than the appraised value of the home.

1 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

What is the difference between a HECM loan and a home equity loan?

In a traditional mortgage or a home equity line of credit (HELOC), you must make monthly payments. However, with a HECM loan you do not have to make monthly mortgage payments.

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Is any home eligible for a HECM loan?

Most single-family homes, two-to-four unit2 owner-occupied dwellings, townhouses, approved condominium units, and some manufactured homes are eligible for a HECM loan. The home must meet FHA minimum property standards. If home repairs are required, in some cases they can be completed after closing using funds from the HECM loan.

2 Not applicable to HECM for Purchase

Benefits


Does the borrower have to make monthly mortgage payments?

No. Unlike a traditional home mortgage or equity loan, you do not have to make monthly loan payments and any existing mortgage will be paid off using the loan proceeds. As with all mortgage loans, you must continue to pay your property taxes and homeowners’ insurance.

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Does the borrower still own their home with a HECM loan?

Yes. As with traditional mortgages, you keep the title to your home and the lender becomes a lien holder. You own and can remain in your home as long as you meet all the HECM loan requirements.

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What are the out of pocket costs?

In some instances the counseling fee may be waived. All other costs – such as origination fees, third-party closing costs, and FHA mortgage insurance premiums – can be financed as part of the loan.

Does a HECM loan affect a borrower’s eligibility for Social Security or Medicare benefits?

A HECM loan usually does not affect eligibility for Medicare or Social Security entitlement benefits. Some needs based government benefits, such as Medicaid and Supplemental Security Income (SSI), may be affected by a HECM loan. You should consult a qualified professional to determine if there would be any impact to your government benefits.

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HECM Loan Proceeds


How much money can the borrower receive?

The amount of funds available to the borrower(s), also known as the Principal Limit, from a HECM loan is determined by the age of the youngest borrower, current interest rates, the lesser of the home’s appraised value, sale price or maximum lending limit and the balance of the existing mortgage (if applicable) and all mandatory obligations as defined by the HECM requirements. In general, the older the borrower(s) are the more equity the borrowers have in their home and the more money they can receive from a HECM loan.

The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM requirements. The borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. Consult a Liberty Loan Advisor for detailed program terms.


How can the borrower receive their money from a HECM loan?

The borrower(s) can receive the money in a lump sum payment with a fixed rate loan. With an adjustable rate loan, borrower(s) can receive the money in a lump sum payment, a monthly check, a line of credit, or a combination of these options. The borrower(s) choose the option that best fits their needs.

Borrowers may access the greater of 60 percent of the principal limit amount or all mandatory obligations, as defined by the HECM requirements, plus an additional 10% during the first 12 months after loan closing. The combined total of mandatory obligations plus 10% cannot exceed the principal limit amount established at loan closing. Consult a Liberty advisor for further details.

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Does the borrower have to pay income taxes on the money they get from a HECM loan?

No. Since the money the borrower(s) receive from a HECM loan is not considered income, it is not taxable. Please have them consult a tax advisor.


Are there any restrictions on how the loan proceeds can be used?

No. Once any existing mortgage is paid off and mandatory obligations are fulfilled, the borrower(s) can use the money from their HECM loan any way they like. Many people put the money into a line of credit for home repairs or improvements. Others use it to pay property taxes, medical costs or in-home healthcare expenses. The borrower(s) can even use it for a vacation, a new car or to help their grandchildren pay their college expenses. The borrower(s) can use it however they want – it’s their money!

The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM requirements. Consult a Liberty Loan Advisor for detailed program terms.

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Loan Repayment


Do the borrower have to repay a HECM loan?

Yes, eventually. However, the loan isn’t due as long as you live in your home as your primary residence, you maintain it according to FHA requirements and you pay required property taxes and insurance.


Will the borrower ever have to pay more than the home is worth?

No, provided you or your heirs choose to sell the home to repay the loan, the borrower’s repayment responsibility is limited to the value of the home. You or your heirs may extinguish the reverse mortgage loan debt at any time and keep your home by repaying the full loan balance.


What happens to the borrower’s home when they pass away?

Upon your death of the last borrower on title, the reverse mortgage loan becomes due. Your heirs can either sell the home to repay the loan or keep the home by repaying the full loan balance. If your home’s value appreciates during the term of the reverse mortgage loan your heirs keep any remaining equity after repaying the HECM loan.

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