A HECM is a commonly used acronym for a Home Equity Conversion Mortgage, which is a government-insured reverse mortgage. A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash.
No. Reverse mortgage borrowers retain 100% ownership of the home. Just like a traditional mortgage, a lien will be put on the home. Borrower(s) may not lose their home under normal circumstances as long as they comply with loan terms including paying for taxes, insurance, and maintaining the property. Also, unless a set-aside account is established, an escrow account is not typically set up to pay for taxes and insurance.
Loan funds can be dispersed through a full of or partial lump sum, a line of credit, monthly payments, or a combination of these ways.
Reverse mortgages are non-recourse loans. This means that if somehow the loan balance ends up surpassing the value of the home, the lender cannot collect more than the value of the home. This is one of the safeguards of the HECM reverse mortgage program. The difference between the loan balance and the home value is covered by the Federal Housing Administration’s (FHA) insurance fund.
Most reverse mortgage loans are typically paid back when the last borrower passes away. However, the loan will become due sooner if a borrower sells the home, permanently moves out, doesn’t occupy the property as their primary residence, or fails to comply with the loan terms. It is crucial that borrowers understand that the loan terms require them to continue to pay their property taxes, insurance and maintain the property or they could risk foreclosure.