Home Equity Conversion Mortgage may be a good choice for some older homeowners
  
By George A. Downey

Homeowners 62 and older should consider the potential benefits a Home Equity Conversion Mortgage (HECM) reverse mortgage may provide. Designed for those who want to age-in-place, this program is unique. 
Why it’s important
Rising prices and market volatility present real and growing challenges, especially to aging homeowners with limited resources. Home equity, one of the largest assets of most homeowners, might provide a solution. Home equity is illiquid and commonly overlooked in financial plans. However, it could be a game-changer through a reverse mortgage. Reverse mortgages convert a portion of home equity to cash and/or credit line to increase and potentially extend available resources without selling, moving, or taking on unwanted monthly payments. 
What’s available? 
Elderly homeowners are encouraged to explore the potential benefits a reverse mortgage might provide. Loan amounts are calculated on: (1) current home value, (2) age of youngest owner (one must 62 or older), and (3) current interest rates.
The calculated maximum loan amount can help pay toward the balance of current mortgage(s) owed, property liens, and loan origination expenses. Net proceeds will be available in cash and/or credit line as the borrower chooses. Among other benefits, no monthly mortgage payments are required to help relieve limited retirement incomes. 
Are HECM reverse mortgages a good fit? 
The Home Equity Conversion Mortgage (HECM) has terms and benefits that are established up front at closing. To learn more, contact the author, George Downey, or another CRMP (Certified Reverse Mortgage Professional) for more information and discover if a reverse mortgage could be a good fit for you and why. 
Reverse mortgage benefits 

  • Potentially no monthly payment obligations. Voluntary payments are permitted, but not required. Keep in mind, like with other mortgage loans, interest will accrue on the amounts borrowed. That means your balance goes up over time, increasing the amount you have to pay, and you have less and less equity in your home.  
  • Increased liquidity. Because it is a loan, withdrawals are received income tax free.  
  • Credit line growth. The undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed, providing more funds for future needs.   
  • No maturity date. Repayment is not required until no borrower resides in the property.  
  • Non-recourse loan. If the balance owed on the loan is more than what the home is worth, the remaining balance is covered by the mortgage insurance paid by the borrower, not the heirs.
  • Protection against real estate and/or financial market declines.  
  • Borrower obligations (to keep the loan in good standing) include:  
    • Keeping real estate taxes, homeowner’s insurance, and property charges current.
  • Providing basic home maintenance.  
  • Continuing occupancy as primary residence. 

Eligibility requirements apply. HECM counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms. 

About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney