Per the Federal Trade Commission (FTC), this type of loan works by letting homeowners turn a percent of their home’s equity into cash without the need to sell their house or make regular monthly payments1.
Dissimilar from your classic forward mortgage, where the borrower begins paying down the loan right away, borrowers do not need to pay off funds received through a HECM until after the last borrower stops living in the house2. There are no monthly mortgage payments required1.
How Can You Use HECM Cash?
The cash you receive from a Home Equity Conversion Mortgage can be utilized for anything you wish. We offer many methods for receiving funds and how you choose to use this money depends entirely on your personal financial situation and retirement goals. If there is a current mortgage on the house, the money from the reverse mortgage is first used to repay the loan. The remaining funds can then be taken in any of the following ways:
- A one-time payment, income tax-free.5
- Consistent, tax-free monthly payments.5
- A line of credit, as a “safety net” for future use if needed.
- A combination of these methods.
Every homeowner is different, and our clients have found creative ways to use a HECM loan to improve their monthly cash flow, lifestyles, and incomes. Here are just a few examples of how HECM loans work to your advantage:
- Make repairs, updates, or improvements to your house to help you live more comfortably.
- Have more money available to pay for regular bills and expenses.
- Reduce or eliminate debt or credit card balances.
- Assist with healthcare expenses, making "aging in place" easier.
- Save money to assist in paying for long-term care down the road.
- Establish a line of credit for occasional expenses or emergencies.
- Assist a family member with large expenses, like college tuition or a down payment on a home.
- Decrease your total taxable income: avoid making taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the funds with income tax-free HECM funds5.
Can My Heirs Keep the House?
Yes. One of the benefits of Home Equity Conversion Mortgages is that your heirs have the option to arrange their own financing, repay the loan, and keep the Camas home. However, the funds used to repay the HECM loan typically come from the sale of the home itself, once the home passes to your heirs.
In the rare event that the amount of the HECM loan repayment is more than the house is worth, neither you nor your heirs will be responsible for repaying the difference. FHA insurance is a part of every HECM, so it would pay any shortfall.
