Per the Federal Trade Commission (FTC), this type of loan works by letting homeowners convert a percentage of their home’s equity into cash without having to sell their home or make regular monthly payments1.
Unlike a standard forward mortgage, where the homeowner begins repaying the mortgage right away, homeowners do not need to repay funds received from a HECM until after the last borrower stops living in the house2. Monthly loan payments are not required1.
How Can You Use Reverse Mortgage Proceeds?
The cash you receive from a HECM loan can be used in any way you want. Longbridge has many ways 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 the home, the cash from the Home Equity Conversion Mortgage is first used to pay off the loan. The remaining proceeds can be taken in any of the following distribution methods:
- A single payment, income tax-free5.
- Consistent, tax-free monthly payments5.
- A credit line, as a “safety net” for later use if needed.
- Any combination of these.
Each borrower is different, and our customers have discovered creative ways to use a reverse mortgage to improve their incomes, lifestyles, and monthly cash flow. These are a few quick examples of how Home Equity Conversion Mortgages work to your benefit:
- Keep more funds on hand to pay for regular expenses and bills.
- Eliminate or reduce debt or credit card balances.
- Assist with medical expenses, making "aging in place" easier.
- Save cash to help pay for long-term care down the road.
- Make repairs, updates, or improvements to your home to live more comfortably.
- Decrease your total taxable income: avoid making taxable withdrawals from IRA, 401(k), or other retirement plans by replacing the cash with income tax-free reverse mortgage funds5.
- Create a line of credit for occasional expenses or emergencies.
- Support a family member with major expenses, like college tuition or a down payment on a home.
Will My Children Keep my House?
Yes. One of the positives of HECM loans in California is that your heirs have the option to get their own financing, repay the reverse mortgage, and keep the Bakersfield home. However, the funds to repay the reverse mortgage usually come from the sale of the home itself after the home passes to your heirs.
In the unlikely event that the total amount of the loan repayment is more than the home is worth, neither you nor your heirs would be obligated to repay the difference. Insurance from the FHA is a component of every HECM, so that would pay any shortfall.
