Per the Federal Trade Commission (FTC), HECM loans work by allowing homeowners to convert part of their house's equity into cash without the need to sell their house or make regular monthly payments1.
Unlike a traditional forward mortgage, where the borrower must begin paying down the mortgage right away, borrowers do not need to pay off money received through a reverse mortgage until after the final borrower no longer lives in the home2. There are no monthly mortgage payments required1.
How Can HECM Cash Be Used?
The proceeds you get from a reverse mortgage can be utilized in any way you wish. Longbridge has many methods for receiving funds and how you use your cash depends on your personal financial situation and retirement goals. If you have a current mortgage or lien on your Laguna Niguel home, the funds from the reverse mortgage will first be used to pay off the loan. The remaining funds can then be received in any of the following distribution methods:
- A single payment, income tax-free.5
- Steady, tax-free monthly payments.5
- A credit line, as a “safety net” for later use if needed.
- A combination of these methods.
Each borrower is different, and our customers have discovered creative ways to use a HECM loan to improve their monthly cash flow, lifestyles, and incomes. Here are a few quick examples of how HECM loans work to your advantage:
- Keep extra cash available to cover regular expenses and bills.
- Eliminate or reduce debt or credit card balances.
- Assist with healthcare costs, making it easier to “age in place.”
- Set aside money to help pay for long-term care in the future.
- Make updates, repairs, or modifications to your house to live more comfortably.
- Decrease your taxable income: avoid making taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the cash with income tax-free HECM funds5.
- Create a line of credit for emergencies or occasional expenses.
- Help a family member with large expenses, like a down payment on a home or college tuition.
Can My Heirs Keep the House?
Yes. One of the benefits of HECM loans is that your children have the option to get alternative financing, pay off the HECM, and keep the house in Laguna Niguel. However, the money to repay the HECM loan most often comes from the sale of the home itself, after the house passes to your children.
In the rare event that the total amount of the reverse mortgage repayment is more than the home is worth, neither your heirs nor you would be obligated to repay the difference. Insurance from the FHA is a component of every Home Equity Conversion Mortgage, so that would pay any shortfall.
