December 28, 2010
FHA HECM loans or reverse mortgages are designed for borrowers age 62
and older. These mortgages are designed to let qualified applicants take out a loan against the equity in the home–loans that can be used for living expenses, home improvements, even the purchase of a primary residence if the borrower is willing to pay (in cash) the difference between the FHA HECM loan amount and the sales price and closing costs.
According to the FHA, HECM loans differ from typical home loans or second mortgages because, “no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to meet the obligations of the mortgage.”
HECM loans have no monthly mortgage payments–the loan balance is paid
off with the sale of the home or upon the death of the FHA borrower. The lender pays the borrower according to one of five options.
Tenure
The borrower gets a monthly payment, the same amount every month for as long as the borrower lives and uses the property as the primary residence.
Term
The borrower gets monthly payments for a fixed number of months as listed in the loan contract.
Line Of Credit
This option has no monthly installment payment, instead the borrower uses the FHA HECM loan like a credit card until the credit has been completely used up.
There are two “modified” types of HECM loan payment plans:
Modified Tenure
This is a combination of the line of credit and tenure payment plans, with a monthly payment made as long as the borrower occupies the home plus an additional amount to be used like a credit card until the credit is exhausted.
Modified Term
This option is a combination of line of credit plus monthly payments for a fixed period of months as spelled out in the loan contract.
FHA HECM loans are only available to qualified borrowers age 62 and up, and as with any other FHA home loan, the borrower must pay mortgage insurance, property taxes, and the usual expenses of living in the home. What makes the FHA HECM loan so appealing to many borrowers, money aside, in the words of the FHA.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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