The Home Equity Conversion Mortgage (HECM), also known at a reverse mortgage, was designed by Congress and the U. S. Department of Urban Development (HUD) specifically to help seniors enhance their retirement years. It is a safe, secure government program, not a swindle that takes advantage of unsophisticated seniors. In fact, numerous safeguards in today's reverse mortgage programs protect senior homeowners from fraud. HECMs are very safe for people who need them.
What is a Reverse Mortgage?
A reverse mortgage is a loan that enables senior homeowners 62 or older to borrow against the equity in their home, without having to sell the home, give up title, or take on a new monthly mortgage payment. The money received can be used for any purpose. The loan amount depends on the borrower's age, current interest rates, and the value of the home. A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower's estate
The most popular reverse mortgage program is the Home Equity Conversion Mortgage, or HECM, administered through the U.S. Department of Housing and Urban Development (HUD). You can read the full details of the program here.
Key Features and Safeguards
Third Party Independent Counseling: Borrowers must meet with an independent reverse mortgage counselor, either in person or by telephone, who will review the transaction and answer any questions the borrower may have.
No Maturity Date: A reverse mortgage cannot become due during the homeowner's lifetime. It is a permanent program. The fact that there are no required payments and there is a lifetime right to occupy the home provides great protection against unexpected future circumstances, making reverse mortgages much safer than other loan alternatives.
Limitation on Fees Charged: Fees are limited by HUD regulations and may be financed, enabling a borrower to incur very little out-of-pocket expense to get a reverse mortgage.
Advance Disclosure of Costs: The Total Annual Loan Cost disclosure displays the total transaction costs over the projected life of the loan. This way, a borrower is made fully aware of the costs incurred in obtaining the reverse mortgage.
Standard & Capped Interest Rates: The interest rate is the same no matter which lender a borrower chooses. Interest rates are adjusted either monthly or annually (the borrower chooses) and have lifetime caps.
No Prepayment Penalty: Although the loan is not due and payable until the borrower permanently moves out of the home, it can be paid-off at any point prior with no additional fees or costs.
Three Day Rescission Right: Even after the loan closes, a senior has up to three days to cancel the transaction for any reason whatsoever.
Asset Protection: The amount due can never exceed the value of the home and title to the home always remains with the borrower. When the loan becomes due, the lender is repaid the sum of funds borrowed plus the accrued interest, but never more than the value of the house. Any remaining value belongs to the homeowner or the estate.
