Article By: Jim Porter – June 30, 2023
An HECM (Home Equity Conversion Mortgage) is a unique loan, also referred to as a “reverse mortgage.”
It is designed for borrowers that are 62 years of age or older. It allows you to access your home equity in the form of monthly income, a line of credit to draw on or immediate cash, tax free, to use for any reason, without ever having to make a mortgage payment on the loan, as long as you live in your home, keep the home insured and the property taxes paid.
If you live in the home until your death, your heirs will have the choice to pay off the loan or sell your home and keep the remaining equity. What a concept! The mortgage company pays you instead of you paying them.
Below are are fables and myths about HECMs that are just not true:
- You turn title over to the bank.
- Debts from the HECM pass on to your heirs.
- You will be forced to sell your home.
- You pay taxes on the loan proceeds.
- You can outlive the loan and will have to start making payments.
- You cannot keep your home in a living trust.
- There are restrictions about how you can use the money.
- There are minimum credit scores.
- The bank owns your home when you are gone.
These myths are one reason why I am only closing 6 or 7 of these loans per year at my office but I can honestly say that every single HECM I have closed over the last 10 years has been life-changing for my client. Many of these clients have 740-plus FICO scores, pension plans and even 401k-IRA accounts but wish to use the tax-free equity in their home to supplement their other income and assets.
The HECM is a government insured loan and is designed for the middle class and home values less than $1 million but there are new types of conventional reverse mortgage loans designed for multimillion-dollar homes in the high-rent districts of California that have very little in fees. I have never closed one personally but a colleague of mine did one on a $3.8 million home in the Oakland Hills where the healthy 79-year-old borrower took out a $1.5 million loan tax-free and paid cash for a vacation home with ocean views on the coast.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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