By George A. Downey

Skyrocketing prices on just about everything have stressed retirement incomes, depleted savings, and threatened financial security. Additionally, home prices have spiked to historic levels – bad news for buyers, but good news for older homeowners that want to age in place.
It’s good news because increased home equity helps provide eligible borrowers access to more funds through the U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) insured Home Equity Conversion Mortgage (HECM) reverse mortgage program.
Why it’s important
One of the biggest fears across America is running out of money in retirement. The ability to tap into home equity to supplement existing resources may help improve financial well-being and could ease anxiety.
The terms of HECM reverse mortgages are usually guaranteed by federal insurance and are uniquely designed to help accommodate reduced retirement incomes and changing circumstances.
HECM advantages
The federal insurance, which is paid by the borrower at closing and annually, usually guarantees the loan terms and helps ensure funding will be provided if the loan is in good standing.
Loan terms are typically locked in at closing to help ensure funding won’t be diminished by financial market or economic changes, real estate price declines, or lender failure.
Borrower obligations for good standing
To maintain good standing with the loan, borrowers must ensure they adhere to all the loan requirements, including:

  • Keeping real estate taxes, homeowner’s insurance and property charges current
  • Providing basic home maintenance
  • Continuing occupancy as primary residence
    Diving deeper – HECM 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.
  • No title or change of homeownership.
  • Credit line growth. For loans in good standing, the undrawn balance of the credit line typically grows (compounding monthly) at the same rate charged on funds borrowed, helping to provide more funds for future needs.
  • No maturity date. Repayment of a loan in good standing 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, upon death of the borrower.
  • Terms and funding honored if good standing is maintained.

What to do?
Older homeowners should learn if they are eligible and how potential benefits might apply to their particular circumstances. While HECMs helps provide significant benefits for many, it may not be a suitable solution for others. Suitability requires thorough consideration of financial and non-financial considerations, which is done with a qualified HECM specialist.
Consultation with a certified reverse mortgage consultant (CRMP) is recommended. CRMPs are exam-tested, experienced, and bound by the Code of Conduct and Professional Responsibility of the National Reverse Mortgage Lenders Association (NRMLA).

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