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What Is HECM and What Does It Mean to Me?

HECM is referring to reverse mortgages that are backed, or insured, by the government. They are typically backed by both FHA and HUD, and almost without exception, reverse mortgages are through this channel. Because of this, learning more about HECM, FHA, and HUD is incredibly important for someone interested in the perks that reverse mortgages have to offer.

There are some intricacies that you need to understand with HECMs before you should get a reverse mortgage. For example, if you do not know the difference between the HECM Saver and HECM Standard plans, you should not get either until you do. Fully understanding everything you need to know about HECMs is the first step to a more comfortable life and retirement.

A Little Background

First of all, HECM stands for Home Equity Conversion Mortgage. These reverse mortgages are insured by both the Federal Housing Agency and the Housing and Urban Development, instead of other reverse mortgage plans that are uninsured or insured by third parties. If it is insured by the government, what does that mean for you?

Basically, for a reverse mortgage to be HECM, it must be approved by the FHA. The FHA runs painstaking processes to insure that you are not getting taken advantage of and that these lenders are running clean businesses. On top of this, you are therefore promised by the government at least some percentage of your payment should the lender you choose go under.

One somewhat unknown caveat is that the maximum equity value for an HECM is $625,000. If your house is valued at more than this, they will knock the price down to $625,000 and take things from there. This is very problematic for those with houses valued significantly higher than this, but it is incredibly unadvisable to take a non-HECM loan to avoid the equity cap as you can easily be taken advantage of or otherwise lose your money.

How Much Will I Get?

Just because the upper equity limit on HECMs is $625,000 does not mean that you will get any amount close to that. While the actual percentage varies greatly from lender to lender, you can expect the money that you receive to be less than fifty percent of the remaining equity in your home. If you have been building equity in your home, you can withdraw this in the form of a reverse mortgage and use the proceeds to pay off the rest of your home loans.

The figure of fifty percent is not taking into account a number of things. Included in this are the startup fees including origination fees and interest that accrues from when you withdraw money. This can be done through a variety of different plans including lump sum and line of credit, so make sure to look around at a variety of lenders to not only find the best rates, but also the options that suit you best.

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