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HECM: The heck with my mortgage payment

Are you wanting to retire, but nervous about your mortgage payment? Better yet, tired of living in that huge house, but not sure if you should downsize or right size into a home that is more suited for aging? Always wanted a new house, but still have a mortgage payment?

HECM is the most important thing outside of Social Security all seniors should know about. And they should learn about it from someone that actually understands it in depth. Don’t take advice from someone who hasn’t studied something in depth.

So, what is a HECM? In it’s simplest sense it is a reverse mortgage.

Many homeowners have disproportionate amounts of their wealth and retirement savings held in real estate and most specifically in their primary residence. A Home Equity Conversion Mortgage (HECM) allows a person over the age of 62 to refinance or purchase a new residence converting their equity in the home to a new mortgage structure backed by the Federal Housing Authority (FHA). This product then eliminates the principal and interest payment associated with the remainder of the debt owed on the house. The monthly payments for the debt are converted from the equity position in the home.

So, why would one look at or think about a HECM?

  • A reverse mortgage for immediate need. Let’s say you have a loved one that is on a fixed income and/or pension with limited resources, has equity within their home, but it is still not paid off. A HECM can convert that equity and eliminate the monthly payment through a refinance and bring much needed relief to the monthly budget of a loved one.
  • A reverse mortgage can enhance lifestyle. Because a HECM does not require a monthly principal and interest payment, monthly cash-flow is instantly increased to travel and do the things you dreamed of in retirement.
  • A reverse mortgage as part of a financial plan. As mentioned above many Americans over the age of 62 hold a disproportionate amount of their wealth in their primary residence. A HECM provides a way to utilize that equity while freeing up monthly cash-flow. Further, since it can come with a HELOC attached to it, it is flexible and liquid and that liquidity can be accessed tax advantaged.

What are the key requirements for a HECM to work?

  • Age, you must be 62 years or older.
  • Home ownership is required. You must own the home you are trying to use a HECM for.
  • Residency, you must live in the primary residence you are trying to HECM.

What happens when I pass away?

That is one of the best parts. This is a complete non-recourse instrument backed by the Federal Government, meaning the Federal Housing Authority (FHA) and Housing And Urban Development (HUD). The only asset that is available for the transaction to be made whole is the home itself. That is it. The provisions and attributes of the HECM program have been updated dramatically in the last few years for the better.

Why would the government do this?

Simply put, because they understand the demographics and the math. They knew back in the Reagan era that the boomer generation was going to hit retirement and a large portion of their wealth would be in their homes. The baby boomers have the largest accumulation of wealth in the history of the world and they are about to go on a fixed income. The government knows that if a large majority still have to make their mortgage payments, that is money not flowing through the economy.

So, they created this program to help seniors access the equity in their homes to free up their monthly budget to provide for their needs themselves. This is really trying to protect people and protect the economy long-term.

We know this sounds too good to be true, we thought so as well, so we investigated more. The more we investigated the more we liked this program and the more we saw the power of this as part of a financial plan.

If you are curious how this could help you provide for your needs or your lifestyle and want to see this as part of your plan, please contact us today.