Per the Federal Trade Commission (FTC), HECM loans work by allowing homeowners to turn part of their home’s equity into cash without having to sell the home or make regular monthly payments1.
Unlike your traditional forward mortgage, where the borrower must begin paying down the mortgage immediately, homeowners do not have to pay off money received through a reverse mortgage until after the final borrower stops living in the home2. Monthly loan payments are not required1.
How Can HECM Cash Be Used?
The money you get from a reverse mortgage can be utilized in any way you want. There are many methods for receiving funds and how you decide to use these proceeds depends entirely on your personal financial situation and retirement goals. If there is an existing mortgage on the house in Las Vegas, the proceeds from the reverse mortgage are first used to pay off the loan. The remaining money can be received in any of the following distribution methods:
- A one-time 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.
Every homeowner is unique, and our customers have discovered creative ways to use a Home Equity Conversion Mortgage to improve their lifestyles, incomes, and monthly cash flow. Here are just a few examples of how Home Equity Conversion Mortgages can work to your advantage:
- Make modifications, improvements, or repairs to your house to live more comfortably.
- Lower your taxable income: prevent having to make taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the funds with income tax-free HECM funds5.
- Have extra funds available to cover everyday expenses and bills.
- Eliminate or reduce debt or credit card balances.
- Assist with healthcare bills, making it easier to “age in place.”
- Set aside funds to assist in paying for long-term care in the future.
- Establish a line of credit for emergencies or occasional expenses.
- Support a child or grandchild with life expenses, such as college tuition or a down payment on a home.
Can My Children Keep the Home?
Yes. One of the positives of Home Equity Conversion Mortgages is that your heirs have the option to get alternative financing, repay the loan, and keep the Las Vegas home. However, the funds to pay off the reverse mortgage usually come from the sale of the home itself, after the home passes to your children.
In the rare event that the amount of the loan repayment is more than the home is worth, neither your heirs nor you will be obligated to repay the difference. Insurance from the FHA is a component of every Home Equity Conversion Mortgage, so it would cover any shortfall.
