Home Equity Conversion Mortgages—better known as “reverse mortgages"—have been available since the Reagan administration launched the program in 1989 to address the unique variety of reasons senior citizens may have to access the equity in their homes.
Since the program’s inception, HECM loan investors and the regulators responsible for mortgage lending have made several changes to the original model, placing additional safeguards on the original program for consumers and making these loans more accessible to a greater number of senior homeowners.
Although not suitable for every situation, today’s HECM loans can provide a variety of key financial options for seniors.
Unlike traditional forward refinance mortgages or Home Equity Lines of Credit (HELOCs), which require debt service in the form of repayment from a senior’s income or cash reserves, a HECM loan provides for the OPTION to make payments if the HECM borrowers so choose, or they can simply make no payments and allow the interest charges on the unpaid principal balance of the loan to accrue until all homeowners have left the mortgaged property permanently.
All that is required is that the borrowers pay their property taxes, homeowners insurance premiums, HOA, or any other property-related charges when they become due and maintain the property in generally good condition.
In general, there are no restrictions for which the proceeds from a HECM loan can be used, so rather than obtaining a traditional refinance loan that creates further cash outflow demands, many seniors turn to HECM loans to solve their needs.
One last but very important point: A HECM loan can also be used by seniors to purchase a different house. A purchase-money HECM provides for the same optional payment benefits, making it an ideal way for senior homeowners to adjust their living style to better fit their current needs.
1. HCEM loans may be a good option for seniors struggling to live on a fixed income from retirement and/or Social Security income sources who need additional monthly income to cover fixed expenses.
2. An HECM loan can be used for those who need cash now to cover necessary home repairs.
3. HECM loans also might be appropriate for seniors with other investment ideas that require a cash contribution.
Richard Carrington is a lifelong Oklahoma resident and a 46-year veteran of the mortgage banking industry. A senior himself and semi-retired since 2019, Richard re-entered the mortgage origination business to address what he perceives as a need to assist senior Oklahomans with their current housing needs. He is an associate with Edmond’s Prosperity Mortgage, LLC, a full-service mortgage banker, and only originates HECM loans. Richard can be reached at rcarrington@pmhlok.com or 405.641.6886.
Prosperity Mortgage, LLC, NMLS #1842936 Richard Carrington NMLS# 1002271.