Understanding the Reverse Purchase Mortgage:

What is a Home Equity Conversion Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is a unique type of mortgage that is insured by the federal government and regulated by both federal and California laws. A HECM can be used not only to refinance an existing home but also as a Reverse Purchase Mortgage to buy a new home, providing a versatile financial tool for those aged 62 and older.

Who Can Benefit from a Reverse Purchase Mortgage?

Anyone aged 62 or older who owns a qualifying house or condominium, or intends to buy one, can apply for a HECM. This Reverse Purchase Mortgage option allows you to purchase a new home while tapping into your home’s equity, giving you financial flexibility in your retirement years.

What Does “Government-Insured” Mean for Me?

With a HECM, your mortgage is protected by the federal government, offering significant benefits. For instance, even if the balance of your loan exceeds the value of your home, your Reverse Purchase Mortgage will continue to function as intended. You’ll still have access to your line of credit, and any monthly disbursements will continue without interruption. Importantly, the lender will never ask you to cover potential losses or reduce your disbursements.

How Does a HECM Compare to a Conventional Mortgage?

If you’re 62 or older, using a Reverse Purchase Mortgage through a HECM offers distinct advantages over conventional mortgages:

    ● No Monthly Payments : You never have to make a mortgage payment.

    ● No Repayment Deadline : There’s no due date by which the loan must be repaid or refinanced.

These features provide security and peace of mind, especially in uncertain financial times. Since the financial crisis, hundreds of thousands of households have paid off their conventional mortgages with the help of a HECM.

What If I Have Cash or Liquid Assets to Buy a House?

Even if you have cash or liquid assets, a Reverse Purchase Mortgage can still be beneficial. While a HECM won’t finance 100% of your home purchase, it can act as a financial multiplier, allowing you to buy a more valuable property by combining the HECM funds with your own.

When Does the HECM Become Due and Payable?

A HECM becomes due when neither you nor your spouse live in the property anymore, or upon your passing. At that point, you or your heirs have two options:

1. Pay off the HECM : Retain ownership by paying off the loan, including any accrued interest.

2. Sell the Home : If the home is sold, your heirs receive any remaining proceeds after the loan balance and selling costs are covered. If the sale price is less than the loan balance, they are not liable for the difference.

What Are the Tax Implications of Purchasing a Home with a HECM?

The cash provided by a HECM when purchasing a home is not considered taxable income and typically does not affect Social Security or pension payments. However, it’s always advisable to consult with a certified public accountant or financial planner to understand how a Reverse Purchase Mortgage might impact any other benefits you receive.

Who Owns the Home?

With a HECM , you retain ownership of your home, just like with a traditional mortgage. However, your home is pledged as collateral for the loan.

What Are My Obligations with a HECM?

As the homeowner, you are responsible for maintaining the property, paying property taxes, and keeping up with insurance and other related fees. Once neither you nor your spouse lives in the home anymore, the HECM will become due.

Pros and Cons of a Reverse Purchase Mortgage

HECM Pros:

    ● No Monthly Payments : You’ll never have to worry about making a mortgage payment.

    ● No Pre-Payment Penalties : Pay off the loan early without any penalties.

    ● No Repayment Deadline : The loan does not have a fixed repayment date.

    ● Low Income Requirements : Easier qualification compared to conventional mortgages.

    ● Government-Insured : Your loan is protected by federal insurance.

    ● Long-Term Affordability : A HECM can be a cost-effective option over time.

    ● Foreclosure Protection : HECMs are safeguarded against the issues that caused millions of foreclosures during the financial crisis.

HECM Cons:

    ● Age Requirement : You must be at least 62 years old.

    ● Lower Loan-to-Value Ratio : A HECM generally requires more cash up front compared to conventional loans.

    ● Short-Term Costs : The initial costs of a HECM can be higher than those of conventional mortgages.