Reverse mortgages – also known as Home Equity Conversion Mortgages (HECMs) – can help homeowners aged 62 and older.
MIAMI, Fla. – A Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, is a HUD-insured financial product that allows homeowners aged 62 or older to convert a portion of their home equity into cash while continuing to live in their homes. Unlike traditional mortgages, where you make monthly payments to the lender, with a HECM, the lender pays you. This means that instead of building equity in your home, you’re essentially borrowing against it.
When the homeowner moves out of the home, sells it or passes away, the HECM loan becomes due, and the loan, along with accrued interest and fees, must be repaid. The repayment is typically covered by selling the house, and any remaining equity goes to the homeowner or their heirs.
Who Might Benefit?
Retirees on a fixed income: An HECM can provide an additional source of income for retirees who may be struggling to make ends meet on their fixed pensions or Social Security benefits. The funds received can be used to cover daily living expenses, healthcare costs or home repairs.
Homeowners with substantial home equity: To qualify for a HECM, you must have a significant amount of home equity. If you’ve paid off your mortgage or have a low remaining balance, you’re more likely to qualify and receive a higher payout.
Those planning to age in place: Many retirees want to continue living in their homes as they age. A HUD insured Home Equity Conversion Mortgage can help finance necessary modifications to make the home more age-friendly, such as installing ramps, grab bars or elevators. This allows homeowners to maintain their independence and avoid the need for assisted living facilities.
Individuals with no heirs or willing heirs: Since the repayment of a HECM is typically covered by selling the home, homeowners with no heirs or heirs who are not interested in inheriting the property may find this option appealing. It allows them to access their home equity during their lifetime.
Homeowners facing financial hardships: If you’re facing financial difficulties, this financial tool can provide a financial lifeline. It can help you pay off existing debts, prevent foreclosure, or deal with unexpected medical expenses.
Those seeking to delay social security benefits: Delaying Social Security benefits can result in larger monthly payments when you eventually start receiving them. A HECM can provide income to bridge the gap between retirement and when you decide to start receiving Social Security.
Conclusion
A HUD-insured HECM loan can be a valuable financial tool for retirees under the right circumstances. It provides homeowners with the flexibility to access their home equity while remaining in their homes. It has proven to be another “tool” in retirement. Home equity can be considered in the overall retirement plan. It’s important to carefully consider your financial situation, long-term goals, and the associated costs. Consulting with a certified financial planner, or a HUD-approved HECM reverse mortgage counselor can help you make an informed decision and determine if this might be the right choice for you.
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