Reverse Mortgages
Home Equity Conversion Mortgage (HECM)

• Reverse Mortgage Description, Eligibility and Considerations
• Reverse Mortgage Types, Shopping and Precautions
• Home Equity Conversion Mortgage (HECM) Description and Eligibility
• HECM Payment Options, Loan Amounts, Fees and Application

Home Equity Conversion HECM payment options loan application fees insurance

HECM Payment Options

The HECM gives you choices in how the loan is paid to you. You may choose one of five payment options:

1. Tenure
   gives the borrower equal monthly payments from the lender for as long as at least one borrower lives and continues to occupy the home as a principal residence
2. Term
   gives the borrower equal monthly payments for a fixed period selected by the borrower
3. Line of Credit
   allows the borrower to make withdrawals, at times and in amounts of the borrower's choosing, until the line of credit is exhausted
4. Modified Tenure
   combines the tenure option with a line of credit
5. Modified Term
   combines the term option with a line of credit

Homeowners whose circumstances change can restructure their payment options for a nominal fee of $20.

HECM Loan Amount and Application

You will work with an FHA-approved lending institution, such as a mortgage lender, bank, credit union, or savings and loan association, to obtain the HECM loan. There are no income, asset, credit, or medical qualifications required. The amount you can borrow depends on your age or the co-owner’s age (whichever is less), the current interest rate, other loan fees, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. In general, the older you are, the more valuable your home is, the less you owe on it, and the lower the interest rate, the more you can borrow.

For example, based on a loan with an interest rate of approximately 9 percent, and a home qualifying for $100,000, a 65-year-old could borrow up to 22 percent of the home's value; a 75-year-old could borrow up to 41 percent of the home's value; and, an 85-year-old could borrow up to 58 percent of the home's value. The percentages do not include closing costs because these charges can vary.

There are no limits on the value of homes qualifying for a HUD reverse mortgage, but the amount that may be borrowed is capped by the maximum FHA mortgage limit for the area, which varies from $172,632 to $312,895. For Alaska, Guam, Hawaii and the Virgin Islands, the FHA mortgage limits may be adjusted up to 150 percent of the ceiling depending on the area. The FHA limits usually increase each year. As a result, owners of higher-priced homes cannot borrow any more than owners of homes valued at the FHA limit.

Homeowners who meet the eligibility criteria can apply through an FHA-approved lending institution, which in turn submits the application to the local HUD Field Office for approval.

HECM Loan Fees and Insurance Premiums

Standard closing costs associated with all mortgages are usually financed with proceeds from the HECM loan, such as an origination fee, third-party closing costs, a loan servicing fee, and interest, which is the amount paid for the privilege of borrowing the money. The lender's loan origination charge can vary, but only up to $1,800 in such charges may be financed by HECM. Borrowers may be charged appraisal and inspection fees set by HUD; these charges can also be financed.

In addition, mortgage insurance is collected by the HECM program. Borrowers are charged 2 percent of the home's value as an up-front payment plus a .5% annual premium, which is paid out on a monthly basis for the life of the loan. These amounts are usually paid by the lender and charged to the borrower's principal balance.

The total cost of getting a HECM loan may vary depending on the payment option you choose and the number of years you intend to remain in the house. Since HECM loans are made by commercial lenders, you should compare costs from two or more lenders.

HECM Program: More Information

• HUD-approved reverse mortgage counseling agencies (or call toll-free 1-800-569-4287)
• FHA-approved lending institutions

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