The Home Equity Conversion Mortgage (HECM) is the FHA insured HECM, which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, or make home improvements and more.
Fixed Rate Loan: The borrower(s) take the maximum amount allowed in one lump sum at the close of escrow. The advantage of this program is the interest rate is fixed. The disadvantage is that no additional mortgage funds are available for future use. A fixed rate loan might be most commonly used when there is an immediate need for funds and additional future needs are less likely. Additionally, some people simply prefer a fixed rate.
Equity Line (Libor Loan): The amount available on the equity line is larger than the amount available on the fixed rate loan program. The equity line gives the borrower(s) the greatest flexibility to access funds as needed for current and future needs. Other advantageous of this program are: the borrower(s) need not access the entire line, interest is only paid on the amount used, the unused portion of the credit limit increases each year. The interest rate on this program is not fixed but adjusts with current market rates.
Term or Tenure: Borrower(s) can receive a fixed amount each month for a predetermined period of time or for their life, as long as they remain in the home. Seniors use this program to supplement existing income.
Other Loan Variations
Combined Programs: Combined Program--the LIBOR loan can function as either a line of credit or a term program (monthly income) or a combination of both. Here is a real life example. Mr. Smith (name changed) was having trouble meeting current obligations with his existing $102,000 mortgage. He took out a reverse mortgage. Mr. Smith used an initial $140,000 distribution to pay off his existing mortgage (eliminating his $800/mo. Mortgage payment), and put $33,000 in the bank. He used the term program to receive an additional $400 a month for the next 10 years to supplement income, and he has access to an equity line of about $120,000 for any future needs or emergencies.
Jumbo Loan (Home Safe Program): For older borrowers, those with a home valued at more than 1.5 million, this program offers higher loan amounts than the standard HECM loan. This program features loan amounts up to $2,250,000 for large luxury homes