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Description of HECM Reverse Mortgage Program

Can a HECM Reverse Mortgage Help Me?

Those who don't know anything about revrese mortgages may want to read this page before getting involved with numbers.

Qualification Requirements

You must be at least 62 years old to qualify, and you must own and occupy a home as your principal residence. There are no income or credit requirements.

If You Have an Existing Mortgage:

The balance on your existing mortgage must be paid off with proceeds from the HECM, which reduces the amounts you can draw. This may still be to your advantage because your current mortgage has a required monthly payment and the HECM reverse mortgage does not.

Attitude Toward Your Estate

Which of the following best describes your attitude?

1. It is important to me to leave my home to my heirs without debt.

MP: You don’t want a reverse mortgage because it results in a debt secured by your home that must be paid after you die or move out. Goodbye and Good luck.

2. I have no need or desire to leave my house to my heirs

MP: You can proceed to consider the HECM reverse mortgage option or options that will best meet your needs.

3. I would like to leave as much equity (property value less mortgage debt) as possible for my heirs, but they would not want me to impoverish myself in my later years in order to do so.

MP: You will want to prioritize HECM options as follows:

  1. First Choice: A credit line leaves the amount of equity you withdraw from your house within your control at all times. If you don’t need it, you need not draw it and it passes to your heirs.
  2. Second Choice: A monthly payment plan gradually reduces your equity, with the extent of the reduction dependent on how long you are around. If you die or move out within a few years, your heirs will receive most of the equity, but if you live to 100 they will receive nothing.
  3. Third Choice: A cash withdrawal plan uses up a major chunk of your equity at the beginning, and more of it as you grow older.

You should also consider selecting the Saver option that is offered on all HECM plans. In exchange for a modest reduction in the amounts you can draw, saver reduces the upfront cost and therefore the buildup of debt on your house, leaving more for your heirs.

HECM Payment Options

The HECM program allows seniors to draw funds in a variety of ways to meet a variety of different needs. Seniors can use their borrowing power to:

  1. Withdraw cash upfront
  2. Reserve a credit line accessible at any time, with the unused portion growing over time
  3. Receive a monthly “tenure” payment for a long as they live in their home
  4. Receive a monthly “term” payment for a period specified by them
  5. Combine 2 or 3 of these options.

HECM Options and the Needs of Seniors

The different HECM options can be used to meet a variety of senior needs, as summarized in the table below, and explained in the linked articles.

Senior Need HECM Option
Credit Line Tenure Annuity Term Annuity Cash Draw
Eliminate Mortgage Payment X X X X
Meet Unexpected Contingencies & Special Occasions X
Offset Loss of Pension From Death of Spouse X
Insure Against Depletion of Financial Assets X
Stabilize Spendable Funds When Income Fluctuates X
Increase Spendable Funds Indefinitely X
Increase Spendable Funds For a Limited Period X
Purchase a House While Limiting Depletion of Assets X
Raise Cash For Investment X

Some Combinations of HECM Options

Combinations of HECM options further expand the range of senior needs that can be met. Three of the most widely used combinations are shown below and explained in the linked articles.

Senior Need Cash Draw & Credit Line or Monthly Payment Credit Line & Monthly Payment Tenure Payment & Credit Line
Pay Off Debt, Use Balance to Reserve Future Borrowing Power X
Reserve Borrowing Power For Specific Need, Use Balance to Supplement Income X
Raise Income to Desired Level, Reserve Balance For Future Borrowing Power X