What are Home Equity Conversion Mortgages?
Home Equity Conversion Mortgages (HECM) are a common type of reverse mortgage. They are categorized as a special home loan offered to homeowners aged sixty-two years and older. Reverse mortgages provide a way for homeowners to obtain a loan based on home equity. There are multiple types of reverse mortgages, but home equity conversion mortgages have become increasingly popular among those eligible. Essentially, this reverse mortgage allows older adults to convert the equity in their homes into cash.
How a HECM Works:
People looking to obtain a home equity conversion mortgage must first apply to ensure they are eligible for the loan. The home is then appraised to determine the loan amount. Those who receive the loan can choose to receive their money through monthly payments or a one-time lump sum payment. The loan must be repaid once the house is sold or when the owner passes away. This makes a HECM a great way for homeowners to generate income during their retirement years.
Who is Eligible for a HECM:
Since this is a loan program for older adults, applicants must be sixty-two years of age or older to qualify. Applicants must be the homeowner or have a low mortgage balance that can be paid off with the funds from the reverse mortgage. The property typically has to be a single-family home to qualify, but certain condominiums and multiple-unit buildings may also be approved. Any approved home must be occupied by the homeowner.
The Difference Between a HECM and a Reverse Mortgage:
The Home Equity Conversion Mortgage is funded by the Federal Housing Administration (FHA). Because the FHA funds the program, they also create the regulations for approval. There are specific prerequisites that must be met to be approved for a HECM. A HECM is also considered safer because it is insured by the FHA.
Reverse mortgages, on the other hand, are typically for those under the age of sixty-two. They provide a way to convert home equity into cash without requiring monthly mortgage payments. Essentially, all Home Equity Conversion Mortgages are considered reverse mortgages, but not all reverse mortgages are HECMs.
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By: Carsten Schulz
Senior Care Advising Intern at WellPath Partners
Healthcare Administration Student, California State University, Long Beach
