March 3, 2024

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Transforming Houses Into Homes

Home Equity Conversion Mortgage Tips – 5 Reasons You May Not Need a HECM Loan

A Home Equity Conversion Mortgage, also called a HECM or Reverse Mortgage, is intended to help senior homeowners who want to use their equity in their home to receive cash out that is tax free, finance home improvements, pay for medical expenses or even supplement their income. These loans may not always be the right decision for a senior looking to receive an income from the equity in their home.

Here are 5 questions a senior homeowner may want to ask themselves before deciding whether a reverse mortgage loan or a home equity conversion mortgage is right for them:

Is your spouse on the title and over 62 years old?
Reverse mortgage lenders suggest that your spouse be on the title of your home before entering into the loan and they must be over the age of 62 as well. If there is a sole owner on the title of the property and the owner sells the home, moves out completely or passes away, dues are owed on their loan and the spouse will not benefit from the reverse mortgage and will not be able to stay in the home. If your spouse is on the title they will be able to benefit from the reverse mortgage and stay in the home for as long as they live or until they sell the property.

Do you have any other financial options?
If you are not in need of the income right away a home equity conversion mortgage is not necessary. Even though the interest is low there are still better options such as using you the funds in your CDs and savings accounts.

Are you investing your reverse mortgage into something else?
Sometimes seniors are encouraged to do investments for friends or family members. Be reasonable with the equity you have earned in your home, as said before, if you have other financial options it is recommended you use those first. Many times an investment is a risky deal and it is recommended to utilize a reverse mortgage to improve your quality of life.

Do you not need a long term solution?
It is recommended you do not apply for a HECM loan if your need for income is not over 5 years. These are not short term loans, instead they are in place to help you pay your bills or free yourself of mortgage payments.

Is your property value high enough?
Seniors look to get into a home equity conversion mortgage need to think about the closing costs associated with their loans. Appraisals, titles and notaries all cost money. Paying over $1000 in fees to receive a loan on $40000 worth of equity is only a good solution if you absolutely need the money.

Obviously there are times when you absolutely need the income from a reverse mortgage. These 5 reasons can help you make the right decision about receiving an HECM loan. Remember this program has been created to help seniors improve their quality of life.