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Reverse Mortgage

The Reverse Mortgage

Typically called an HECM (Home Equity Conversion Mortgage) is engineered for the older homeowner who wants to convert the equity in their house into cash, but does not want to sell their home.

The reverse mortgage is completed through the FHA it is for people who are 62 years or older and own their house or have decent amount of equity in their home.  The home must be owner occupied and the homeowner must be able to continue to pay property taxes and insurance.  Homes that are eligible include: Single family homes, multi family up to 4 units, FHA approved condos and manufactured homes.

The amount that the homeowner receives depends on the age of the borrower, the current interest rate, the appraised value or the house and the mortgage insurance premium.  The FHA determines the value based on an appraisal or the mortgage limit of $625,500.

There are 6 ways to receive your payments on this type of loan.  1) Called a Tenure - One can have equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.  2) Called a term - equal monthly payments for a fixed period of months selected.  3) Called a Line of Credit - The homeowner can also use it as a line of credit - they choose how much to receive and when.  4) Named a Modified Tenure - A combination of a line of credit and scheduled monthly payments for as long as the homeowner remains in the home.  5)  Modified term is a combination or a line of credit plus monthly payments for a fixed period of months selected by the homeowner.  6)  Last but not least A single disbursement lump sum.

The costs involved in obtaining an HECM are; the loan origination fee, third party fees i.e. appraisals, inspections, title work, FHA mortgage insurance premiums, servicing fees,  and interest.  One should consider this carefully before deciding if a HECM is right for their situation.  The equity in your home will be going down during this process, but for some people if they do not have the cash flow to stay in their home and moving is just not an option then this might be the best option. 

Michael Shea works for Northeast Financial in Middletown and lives here in WH.  

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