Per the Federal Trade Commission (FTC), HECM loans work by letting homeowners turn a percentage of their home’s equity into cash without the need to sell the house or make regular monthly payments1.
Unlike your typical forward mortgage where the borrower begins paying down the mortgage immediately, borrowers do not have to pay off funds received through a HECM until after the final borrower no longer lives in the home2. Monthly mortgage payments are not required1.
How can you use HECM proceeds?
The funds you receive from a reverse mortgage can be utilized for anything you want. We provide many distribution methods for receiving funds and how you use this money depends on your retirement goals and personal financial situation. If you have an existing mortgage or lien on the Oceanside house, the proceeds from the reverse mortgage are first used to pay off the loan. The remaining proceeds can then be received in any of the following ways:
- A line of credit, as a “safety net” for later use if needed.
- A single payment, income tax-free. 5
- Consistent, tax-free monthly payments. 5
- A combination of these methods.
Every homeowner is different, 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 a Home Equity Conversion Mortgage could work to your benefit:
- Assist a child or grandchild with life expenses, like a down payment on a home or college tuition.
- Create a credit line for emergencies or occasional expenses.
- Eliminate or reduce credit card balances or other debts.
- Make updates, repairs, or modifications to your home to live more comfortably.
- Have additional money on hand to pay for everyday bills and expenses.
- Help with medical costs, making "aging in place" easier.
- Lower your total taxable income: prevent having to make taxable withdrawals from 401(k) or other retirement plans by replacing the cash with income tax-free HECM funds5.
- Set aside cash to assist in paying for long-term care in the years ahead.
Can my heirs keep my home?
Yes. One of the benefits of reverse mortgages is that your heirs have the option to arrange their own financing, repay the reverse mortgage, and keep the Oceanside house. However, the funds to pay off the HECM loan typically come from the sale of the house itself after the home passes to your children.
In the unlikely event that the total amount of the loan repayment is more than the value of the house, neither you nor your heirs would be obligated to repay the difference. FHA insurance is a component of every Home Equity Conversion Mortgage, so that would make up for any shortfall.
