Yes. Home Equity Conversion Mortgages are an option for consumers aged 62 and older that are cash-strapped but their homes equity-rich. HECMs (read as HEKUMs) are backed by the FHA/HUD and make up the bulk of today’s reverse mortgage products. Even when money is not an issue now, it could arise later on as daily living costs and medical bills pile up. Reverse mortgages help you monetize your biggest asset, your home arguably.
A Way to Cash in on Your Equity
HECMs allow you to tap your existing home equity and convert it into cash for now or during the rainy days. Because the total amount you can borrow will depend on the existence of such home equity primarily, the mortgage should have been substantially paid down and property values have appreciated.
But unlike a cash-out refinance, a home equity loan, or a home equity line of credit where payments are required periodically to pay back the loan, reverse mortgages will not be repaid until the loan becomes due and payable, e.g. death of both borrowers.
How to Tap This Cash
Depending on your cash needs, you can arrange how to receive your loan proceeds through the type of HECM you’re going to get.
If you’re planning to use the money for a large purchase or consolidate debt and want to receive it in bulk, the fixed-rate mortgage type will award you the proceeds in one single, large disbursement at closing.
If you’re being careful with your money and plan to use it little by little as you deemed fit, the variable-rate HECM can work for you. It has several disbursement methods under its belt, including:
- Tenure. You receive equal monthly payments under this scheme.
- Term. Just like the tenured payments, you receive equal monthly payments for a specific period of time as you choose.
- Line of credit. There is a maximum loan amount you can access at any time until the funds are exhausted.
- Modified tenure. A combination of tenure and line of credit modes of disbursement.
- Modified term. A combination of term and line of credit modes of disbursement.
These payments will continue for as long you or any other borrower stays in the home that serves as your primary residence, a main requirement of HECMs.
A Word About HECMs
HECMs work in reverse: you get money from the lenders when you choose and defer paying any of it until a maturity event happens. At the end of the day, it remains a loan; it is not free money and is charged with an interest rate and five other fees.
Exercise prudence when getting a HECM and spend your loan proceeds wisely. More importantly, know your options before you owe under any HECM. Take advantage of reverse mortgage counseling offered by the HUD.