Reverse Mortgage Basics & Beyond
Kay M. Mukaigawa
(R) ABR, CRB, CRS, GRI, SRES
President & Principal Broker
ENGEL & VÖLKERS – Honolulu
Reverse Mortgage loans, also known as Home Equity Conversion Mortgage or HECM, have helped more than one million Americans nationwide access their home equity to find greater security in retirement. The loan can be used in a number of ways, many of which are focused on assisting adults in achieving their financial goals so that they can enjoy retirement.
HECM loans have been improved over the years so that it can better meet the needs of older adults. Today, there are important safeguards in place to ensure that it can continue to help consumers for years to come.
How does it work?
With a traditional HECM loan, borrowers can access their home equity and defer payment of principal and interest, so long as they continue to comply with loan terms. You can eliminate you monthly mortgage payment, although you must continue to pay property taxes, homeowner’s insurance, maintenance fees, if any, and maintain your home.
The HECM is unlike a traditional loan where the borrower makes payments to the lender. With the federally-insured HECM loan, the lender makes payments to the borrower and the loan is typically repaid when the last borrower or eligible non-borrowing spouse passes away or leaves the house. There are multiple ways to receive the proceeds, and you can spend the cash as needed.
Common uses of Reverse Mortgage loans include: Eliminating your monthly mortgage payments and access cash so you can afford to enjoy the next phase of life. Using the monthly or lump sum payments from a reverse mortgage loan or the proceeds from a refinance loan to supplement your social security and other income without tapping into your investment portfolio.
You can use a HECM to purchase a new house that fulfills all your retirement needs without a monthly mortgage payment. Establishing a standby HECM line-of-credit that will grow over time & help cover you.
Important features of a HECM loan include: You must complete HECM counseling with an independent counseling agency. You must undergo a financial assessment to ensure you are able to meet the financial obligations of the loan, which includes the ability to pay your property taxes and homeowners insurance. If your spouse is younger than 62, they may qualify as a non-borrowing spouse and remain in the home even if you leave or pass away, so long as they continue to meet all loan obligations.
You must be at least 62 years old. You must own your home. The home must be your primary residence.