Federally insured Home Equity Conversion Mortgage provides special terms to accommodate retirement incomes

By George A. Downey

Homeowners 62 and older should consider the potential benefits a Home Equity Conversion Mortgage (HECM) was designed to provide. Designed for those who want to age in place, this program is unique, safe, and a versatile source of additional funds.
Why it’s important
Rising prices, volatile markets, longevity, and other risks threaten aging Americans. Home equity, the largest asset of most, might provide a solution. Because home equity is not liquid, it is commonly overlooked as a financial resource.
However, a HECM converts a portion of home equity to cash and/or a line of credit to increase and extend financial security without selling, moving, or taking on unwanted monthly payments.
Are HECMs safe?
HECM terms and funding are protected by federal (HUD/FHA) insurance, guaranteeing performance as long as the loan remains in good standing. Then, regardless of any future adverse changes that might affect the economy, financial markets, or real estate values, the loan terms and funding are assured, even if the lender goes out of business.
HECM Benefits
• Improved cash flow: No monthly loan payments required.
• Increased liquidity: Withdrawals are received income-tax-free.
• No title or change of home ownership.
• Credit line growth: The undrawn balance of the credit line grows (compounds monthly).
• No maturity date: Repayment not required until no borrower resides in the property.
• Non-recourse loan: No personal liability for borrowers or heirs.
• Protection against real estate and/or financial market declines.
• Terms and funding guaranteed while good standing maintained.
• Borrower obligations (to keep the loan in good standing) are limited to:
• Keeping real estate taxes, homeowner’s insurance, and property charges current.
• Providing basic home maintenance.
• Continuing occupancy as primary residence.
Education is essential
Older homeowners should learn if they may be eligible and how potential benefits might apply to their situation. While HECMs provide financial and other benefits for many, they may not be a suitable solution for others. Suitability requires thorough consideration of financial and non-financial considerations. Consultation with a HECM specialist is highly recommended. Contact the author for more information.

Other considerations: *https://fred.stlouisfed.org/series/CSUSHPINSA

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