The Benefits of a HECM Loan
A reverse mortgage is the complete antithesis of a home equity loan. The biggest difference is the fact that you do not have to make monthly mortgage payments on a reverse mortgage. In fact, a reverse mortgage pays you monthly (dependent on the program the borrower choses) and the loan is repaid when the borrower passes away, no longer lives in their primary residence or fails to pay their financial obligations.
Is a reverse mortgage still a loan? Yes.
However, consider living off your home equity for the next couple of decades before having to repay your reverse mortgage loan as opposed to taking our a home equity loan, using it quickly and then having to pay it back as soon as possible.
Does it still accrue interest? Yes.
However, the line of credit option does not accrue on the unused portion, only the funds that are used accrue interest. If you are looking for a rainy day fund, a reverse mortgage line of credit may be just what you’ve been looking for. In addition, this is the only line of credit that cannot be cancelled or frozen as long as there are still funds in the account.
Are my children and/or heirs responsible for repayment? No.
A reverse mortgage is a non-recourse loan, ensuring that that no one can go after your heirs for repayment as opposed to a home equity loan. In addition, the reverse mortgage loan carries a mortgage insurance premium which insures that even if the loan balance is greater than the current value of your home, the borrower or their heirs are not responsible for the difference. This is why the MIP is so important.
In addition, any remaining home equity will go to your heirs after the loan, plus interest, is repaid.
A reverse mortgage is not your run of the mill loan, it’s a loan geared specifically for seniors hoping to age in place comfortably. Retirement has become a rebirth, not the end of a journey. Make sure it’s as great as you’ve always planned.
Be aware that while you cannot lose your home under normal circumstances, foreclosure may occur if you do not pay your taxes and insurance and otherwise comply with the loan terms