Per the Federal Trade Commission (FTC), HECM loans work by allowing homeowners to turn part of their house’s equity into cash without the need to sell their home or make regular monthly mortgage payments1.
Unlike a classic forward mortgage where the homeowner begins repaying the mortgage right away, homeowners do not have to pay off funds collected through a HECM until after the final borrower no longer lives in the house2. There are no monthly loan payments required1.
How can Reverse Mortgage funds be used?
The money you get from a Home Equity Conversion Mortgage can be utilized for anything you like. We offer several distribution methods for receiving proceeds and how you decide to use these proceeds depends completely on your personal financial situation and retirement goals. If you have an existing mortgage on your home in Eloy, the proceeds from the Home Equity Conversion Mortgage are first used to repay the loan. The remaining proceeds can be received in any of the following distribution methods:
- Steady, tax-free monthly payments. 5
- A single payment, income tax-free. 5
- A line of credit, as a “safety net” for later use if needed.
- Any combination of these methods.
Every homeowner is unique, and our clients 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 illustrations of how reverse mortgages can work to your advantage:
- Have additional funds on hand to cover everyday expenses and bills.
- Make modifications, improvements, or repairs to your house to live more comfortably.
- Lower your taxable income: prevent having to make taxable withdrawals from 401(k) or other retirement plans by replacing the funds with income tax-free reverse mortgage funds5.
- Eliminate or reduce credit card balances or other debts.
- Help with medical expenses, making "aging in place" easier.
- Set aside cash to assist in paying for long-term care in the years ahead.
- Establish a credit line for occasional expenses or emergencies.
- Help a grandchild or child with life expenses, like a down payment on a home or college tuition.
Can my heirs keep the home?
Yes. One of the benefits of HECM loans is that your heirs are provided the option to arrange alternative financing, repay the HECM, and keep the Eloy house. However, the money to pay off the HECM loan typically comes from the sale of the house itself once the house passes to your children.
In the rare event that the total amount of the loan repayment is more than the home is worth, neither you nor your heirs would be required to repay the difference. FHA insurance is a component of every Home Equity Conversion Mortgage, so that would make up for any shortfall.
