There are many different reasons why HECM or Home Equity Conversion Mortgages, sometimes called reverse mortgages, are a great financial tool for seniors.
Of course, as with any borrowing option, they aren’t right for everyone at every time of life. Understanding the facts behind the HECM loan option and then making an informed decision is always the best course of action. Unfortunately, this is often a confusing process as there is a lot of misunderstanding and inaccurate information posted online from people who don’t understand the program or the process.
To help you learn more about the benefits of this lending program, let’s look at four different myths about these HECM loans and clarify the incorrect information.
You Have to Own Your Home to Qualify
All reverse mortgages are designed to allow homeowners to access the equity they have built up in their home. You can still be paying a mortgage or even have a home equity loan and qualify for a reverse mortgage.
What is important to realize is that any debt you have that is secured by your home will be paid off first through the HECM process. This can still be a very effective option to wipe out debt and eliminate monthly payments on the property.
You Have to Make Monthly Payments
There are no monthly payments to the lender with a reverse mortgage. You do need to pay homeowner’s insurance and taxes, and HOA dues if applicable.
The repayment of the loan is triggered only when the borrowers are out of the home for 12 consecutive months, if all borrowers are deceased, or if the property is sold or the borrowers fail to maintain the home or to stay current on home insurances, taxes, and any HOA dues.
You Don’t Own Your Home Anymore
The purpose of this FHA monitored and regulated program is to allow seniors to maintain control of their home, and this includes holding the title. The lender doesn’t take the title to the home, and the borrowers have full ownership and decision-making authority over the property.
You Can’t Sell Your Home or Bestow It
There is no restriction on selling a home, even if you have an HECM. If you do sell the home, the lender is paid off as per the standard terms of all reverse mortgages. This will include principal and interest, which will be outlined in your agreement.
Also, since the borrowers hold the title, they have the ability to leave the home to an heir. The heir will then have the opportunity to sell the home and pay off the HEMC lender, or pay out the loan and retain title to the home.
There is a lot of confusion and misinformation about reverse mortgages. If you are thinking about this option, contact our experts at Longbridge Financial, and we will be happy to talk to you about your options.