Mortgage Loan?

A reverse mortgage is a home-secured loan whereby the borrower can defer repayment of the loan balance until a later date. They’re designed to help improve the quality of life for older American homeowners and homebuyers. While there are various types of reverse mortgages, the Home Equity Conversion Mortgage (HECM) loan is the only reverse mortgage insured by Federal Housing Administration (FHA) and the most commonly used option. This guidebook refers to HECM loans only.

A HECM allows homeowners 62 and over to convert a percentage of their home equity into cash (drawn at closing), fixed monthly advances (for a set number of months or the life of the loan) or a growing line of credit to draw from as needed for any use. The borrower can pay as much or as little toward the loan balance each month as they wish or opt to make no monthly mortgage payments. As is required of any homeowner, a HECM borrower still needs to pay critical property charges, like taxes, insurance and maintenance. HECMs must be in the first lien position. Some or all of the HECM loan proceeds can be used at closing to pay off (refinance) an existing mortgage. Essentially, if your older-adult client is still carrying a mortgage, they would be turning their monthly-payment-required mortgage into a monthly-payment-optional mortgage.

The unpaid HECM loan balance accrues interest and fees and eventually must be repaid. However, the HECM balance is not typically due and payable until the last surviving borrower permanently leaves the home (e.g., passes away or moves into a nursing home).