Who Benefits Most From The Home Equity Conversion Mortgage Program?
by Sourav Ganguly Loans & Credit 14 October 2021
We’re all well-aware of the numerous mortgage plans and deals currently available to us. Nevertheless, not many people are familiar with Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage.
In this article, you can learn everything about it and why it’s becoming such a popular choice for older generations. Ultimately, it will help you decide whether a reverse mortgage is a right choice for you.
HECM is a reverse mortgage plan primarily intended for older generations reaching their retirement years. Essentially, it’s a type of loan that allows the borrowers to access a certain amount of money taken from the total value of their property.
Namely, HECM uses home equity as its primary factor in deciding the amount of loan the borrowers get. The bigger the home equity, the bigger the loan can get and vice versa.
As older individuals reach their retirement years, they might realize they have a lot of money in their home equity but low pension income. In this case, HECM might come as a perfect solution.
However, HCEM plans come with a unique list of advantages and disadvantages. Each person contemplating signing a HECM plan contract is strongly advised to read this article and learn about reverse mortgages in greater detail.
Pros Of HECM
HECM comes with quite a few benefits you can take advantage of and All Reverse Mortgage went in-depth to outline them all. Here are just some of them.
1. Secure Your Retirement
If you didn’t invest throughout your working years or don’t have the necessary amount of funds saved, HECM could be a great idea to secure your retirement, especially if you invested a lot of your wealth into your home. Additionally, you can use any illiquid assets to increase your loan amount.
2. Guaranteed Lifetime Credit
With reverse mortgage plans, you don’t need to worry about running out of cash sometime in the future. The plans are valid as long as you live in your home and pay all the insurance and tax fees, which brings us to the next point.
3. Live In Your Home
Mortgages often require the borrowers to move out of their homes. However, that isn’t the case with HECM. Even if you decide to take out mortgage loans based on your property, you can still live in it for the rest of your life and fully enjoy your retirement years.
4. Pay Off Any Existing Loans
If there are still some unpaid and existing loans connected to you or your property, it’s the perfect opportunity to get rid of them. Mortgage lenders will immediately deduct any remaining owed amounts from the total amount of the mortgage loan, which leaves you with the amount of money you can freely spend.
5. Flexible Payments
HECM plans are pretty flexible and allow you to customize the terms and conditions in the contract. Whether you want the entire amount paid off all at once or monthly, yearly, or quartal payments, you can choose the plan which suits your needs best.
Cons Of HECM
Unfortunately, HECM comes with several disadvantages too. Here are some reasons why some people might not like the idea of reverse mortgages.
1. Possibility Of Losing A Home
HECM plans are great as long as you pay your insurance fees, taxes, and all the other obligations directly connected to your home. If you stop paying any of these fees, the lenders have the power to take your home away from you. It can be a big risk for many retired people.
2. Your Heirs Inherit Less
By taking your home equity funds and using them, you’re lowering the total worth of your entire property. Although this might not affect you, it’ll certainly affect your heirs. They can inherit considerably less, as they need to pay off large amounts of loans. In most cases, they sell the property to cover the expenses.
3. Impacts Other Retirement Benefits
If you’re planning to apply for various retirement benefit programs run by the government, you might not qualify because of your mortgage loan. The best way to find out how it affects you is to talk to a mortgage specialist.
Who Benefits Most From HECM?
It’s safe to say HECM comes with a very specific list of pros and cons. Therefore, it’s certainly not a mortgage plan made for anyone. So, who benefits most from this plan?
If you’re 62 or older and your retirement funds aren’t covering your living expenses, a reverse mortgage could be a viable solution. Whether you need money to pay off your previous mortgage debts, add to your income, or pay for expensive healthcare bills, HECM could come in handy.
This type of mortgage allows you to convert part of your home equity into cash without having to move out of your home, sell it, or pay any monthly fees.
Whether you or someone you know is considering a reverse mortgage, it’s crucial to get familiar with all of the features of this mortgage loan type. By evaluating the pros and cons this mortgage offers to its borrowers, you’ll be able to make a better decision.
If you conclude reverse mortgages aren’t for you, there’s a different mortgage plan which suits your needs better.