Sometimes, despite careful planning, life can throw unplanned circumstances your way and finances can become tighter than expected during your retirement years. However, if you’re a homeowner, there is good news and a possible solution.
A HECM loan allows you to borrow from the value of your home without making payments. You keep the title to your house, and the lending bank recoups the money once your home is sold, if property taxes or homeowners insurance goes unpaid, or after you pass away.
Here are answers to five frequently asked questions about this type of loan:
- How do I know if a HECM loan is right for me? If you’re in need of extra cash, this can be a way to secure it. Typically, there are no limits on what you can use the money for so the funds can be used to cover daily expenses, medical bills, an existing mortgage, or even travel.
- How do payouts work? Just like with conventional mortgages, HECM loans come with either adjustable rates or fixed rates. A fixed-rate loan is paid in a lump sum and an adjustable-rate loan gives you the option of being paid in monthly payments, as a line of credit, or as a lump sum.
- How do I know if I’m eligible? There are several factors that determine eligibility. You must be at least 62-years-old and either own your home or have a low mortgage balance, in addition to general lending requirements.
- Are there any drawbacks? There are benefits and drawbacks to every type of loan product, and you and your lender should discuss your specific financial situation when deciding if a HECM loan is the right solution for you. If you’ve tapped all other financial resources and plan on living in your home for the rest of your life, this could be a solution for you.
- How do I decide? It is recommended you discuss this decision with your family members, as they may be the ones incurring the debt after you pass. Even if you change your mind after applying for a HECM loan, you have a three-day window to cancel.
A HECM loan can be a much-needed solution if you find yourself needing additional funds during your retirement years, but there are many factors to take into consideration. I’m here to offer guidance and answer your questions to help you enjoy your retirement years to the fullest.
*(1) at the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds; (2) charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees; (3) the loan balance grows over time and interest is charged on the outstanding balance; (4) the borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home; and (5) interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment. This material is not from HUD or FHA and has not been approved by HUD or any government agency.