Per the Federal Trade Commission (FTC), this type of loan works by allowing homeowners to convert a percentage of their home’s equity into cash without the need to sell the house or make regular monthly mortgage payments1.
Unlike a typical forward mortgage, where the borrower begins paying down the loan immediately, homeowners do not have to pay off funds collected from a HECM until after the last borrower stops living in the home2. Monthly mortgage payments are not required1.
How Can You Use HECM Proceeds?
The proceeds you receive from a HECM loan can be used for anything you like. Longbridge has several distribution methods for receiving funds and how you decide to use this money depends completely on your personal financial situation and retirement goals. If there is an existing mortgage or lien on your Fairfield house, the proceeds from the reverse mortgage will first be used to pay off the balance. The remaining money can then be received in any of the following ways:
- A one-time payment, income tax-free.5
- Steady, tax-free monthly payments.5
- A line of credit, as a “safety net” for future use if needed.
- Any combination of these.
Every homeowner is different, and our customers have discovered creative ways to use a Home Equity Conversion Mortgage to improve their incomes, lifestyles, and monthly cash flow. Here are a few quick examples of how Home Equity Conversion Mortgages can work to your advantage:
- Keep extra money on hand to pay for everyday expenses and bills.
- Eliminate or reduce debt or credit card balances.
- Assist with medical costs, making "aging in place" easier.
- Save funds to assist in paying for long-term care down the road.
- Make repairs, updates, or improvements to your house to live more comfortably.
- Decrease your taxable income: prevent having to make taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the cash with income tax-free HECM funds4.
- Have a credit line for emergencies or occasional expenses.
- Help a family member with large expenses, such as college tuition or a down payment on a home.
Will My Children Keep my House?
Yes. One of the positives of HECM loans is that your children are provided the option to get alternative financing, pay off the loan, and keep the Fairfield home. However, the money to repay the reverse mortgage typically comes from the sale of the home itself, after the house passes to your heirs.
In the unlikely event that the total amount of the loan repayment is more than the home is worth, neither your heirs nor you will be required to repay the difference. Insurance from the FHA is a component of every Home Equity Conversion Mortgage, so it would pay any shortfall.
