Reverse mortgages of the past were a very different animal from today’s home equity conversion mortgages. And while many people still use the same term to describe these different loans, it’s a bit like calling both a cougar and a tabby “cats,” one is definitely friendlier than the other. So let’s dig into what are the big changes that have taken all the bite out of home equity conversion mortgages (HECM) and discuss the common myths:
Myth #1: The lender becomes the owner, and the borrower is only allowed to stay in the home.
Fact: The homeowner is still the title holder. The borrower is simply using the HECM to have a source of income in the form of a loan, that will carry them through all the years they live in the home. Nordic Home Loans is happy to go over how this program helps those with financial needs while safeguarding your home.
Myth #2: Borrowers can no longer leave the home to their heirs.
Fact: This is not true as the estate still inherits the home as it would have before. There is a lien for the balance of the HECM loan that will need to be paid at the time the home goes to the estate. Another important fact to remember is that HECM loans are insured by the FHA and are non-recourse loans, which means that the estate will owe only the lesser of the two: the loan balance or the property. Your heirs may also refinance the home if they’d rather keep the home than sell. Additionally borrowers should know their other possessions are still protected, as no other assets other than the home will be used to pay the debt.
Myth #3: The owner may not leave the home.
Fact: As long as the homeowner doesn’t rent out the home or take up another home as their primary residence, they should be in good standing. Once all homeowners move out of the home for twelve consecutive months the home becomes no longer the primary residence.
Myth #4: The interest rate for the loan is very high.
Fact: Interest rates are very low across the board in these times, making this an ideal moment to use a loan program like HECM. Another financial plus: homeowners do not pay taxes on money received from the HECM because it is a loan, and therefore not considered traditional income. As borrowers are still the homeowners, they will need to handle the responsibility paying their property tax and insurance.
Myth #5: The borrower’s social security will be affected negatively.
Fact: Social Security benefits will not be affected at all by an HECM loan. These benefits are considered an entitlement that individuals are eligible to receive regardless of income changes. Therefore HECM cannot affect the borrower’s benefits.
Still a little confused on what a current day HECM is, now that you know what it isn’t? As USA Today explains, “With a reverse mortgage, you’re tapping the home equity you’ve built up by getting a loan against it. The funds are given as an upfront lump sum payment, over monthly payments, or as a line of credit that you repay only when you sell the house or pass away. There are no monthly payments.” Nordic Home Loans would welcome chatting with you on your many options in lending against your home, from refinancing to HECM loans. We will work with you to create a strategic plan that will reap you the most benefits, please contact us to get started.