According to the Federal Trade Commission (FTC), HECM loans work by allowing homeowners to convert a portion of their house's equity into cash without the need to sell the house or make regular monthly mortgage payments1.
Dissimilar from a traditional forward mortgage, where the homeowner begins repaying the mortgage right away, borrowers do not need to pay off funds collected through a HECM until after the last borrower stops living in the house2. There are no monthly loan payments required1.
How Can Reverse Mortgage Proceeds Be Used?
The money you receive from a reverse mortgage can be utilized in any way you wish. We offer many distribution methods for receiving funds and how you decide to use your cash depends completely on your retirement goals and personal financial situation. If you have a current mortgage or lien on the house in Nipomo, the proceeds from the reverse mortgage will first be used to repay the balance. The remaining money can be received in any of the following distribution methods:
- 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.
- Any 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 a few quick examples of how HECM loans can work to your benefit:
- Have extra money on hand to cover regular expenses and bills.
- Reduce or eliminate debt or credit card balances.
- Help with medical costs, making it easier to “age in place.”
- Set aside money to help pay for long-term care down the road.
- Make updates, repairs, or modifications to your house to live more comfortably.
- Lower 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.
- Have a credit line for occasional expenses or emergencies.
- Help a grandchild or child with large expenses, such as college tuition or a down payment on a home.
Can My Heirs Keep the House?
Yes. One of the benefits of reverse mortgages is that your children are provided the option to arrange their own financing, repay the reverse mortgage, and keep the home in Nipomo. However, the funds to pay off the reverse mortgage typically come from the sale of the house itself once the house passes to your heirs.
In the unlikely event that the amount of the HECM loan repayment is more than the value of the house, neither your heirs nor you would be responsible for repaying the difference. FHA insurance is a part of every HECM, so it would pay any shortfall.
