Home equity conversion mortgage (HECM) loans allow seniors to use the equity in their homes to obtain extra cash. Since these proceeds are not taxable and do not alter Social Security payments, they are a good way to expand a struggling senior’s monthly budget. It is, nevertheless, important to understand that an HECM loan differs from a traditional home mortgage loan in many regards. Even if you have held many traditional home mortgages in your life, you should be sure to consider the basic requirements of these special loans.
A reverse mortgage loan is only available to homeowners who are 62 or older. Also, while some condominiums are allowed, generally the home that will be used as collateral for the home equity credit mortgage must be a single-family home. Further, the home must be the borrower’s primary residence.
Because payment of the loan is satisfied when the lender acquires ownership of the home upon the death or movement of the borrower, there are no monthly payments for the borrower to worry about. That said, once approved for a home equity credit loan, the borrower must keep the property in good condition. The homeowner also must pay all legally-required taxes and carry an insurance policy. Failure to do so could result in the loan maturing early. That is, if the borrower fails to meet the loan obligations, they could lose ownership of the home prior to death or movement.
At first glance, an HECM loan can seem confusing when compared to a traditional mortgage. Nonetheless, the requirements for these loans are straightforward. If you are a senior looking for extra cash, a good reverse mortgage lender can explain your options and help you make the best decision.
