Home Equity Conversion Mortgages

Myth #1

You "Sell" Your Home to the Bank

False.

A HECM is a loan product like any other. You do not "sell" your home to the bank. You maintain title to your home and the HECM is recorded as the first (and only) lienholder. You convert about 40-60% of your home equity to cash or a line of credit and the remainder accrues interest until the loan is paid off or until the last borrower passes away.

Myth #2
Your Heirs Will Not Inherit the Home

False.

You can leave your home to your heirs or next-of-kin as you would with any other loan type. Your heirs will need to pay off the balance of the mortgage as the loan is not assumable or transferrable. But, you can also choose to cover the balance of the mortgage with a life insurance policy (which is normally cheaper than a mortgage payment).

Myth #3
You Will Go "Upside Down" and Lose the Home

False.

Although you do not have to make any mortgage payments for the rest of your life, you can choose to do so. Each month you will receive a statement and you can pay the interest or even pay more if you like. BUT, even if you pay nothing and the market value of the home does not outpace the balance of your loan, you can never lose the home simply because you owe more than it is worth. You can pay nothing to the bank until the last borrower passes away. That's the loan agreement. See #6 & #7 too!

Myth #4

Social Security & Medicare Are Affected

False.



The money you receive from a cash-out (or line of credit) is not considered income by the federal government. Social Security & Medicare programs are not affected by taking out a HECM loan on your primary residence. Please contact your financial advisor for additional guidance.

Myth #5

It's Just a ""Fancy" Home Equity Loan

False.

Although a HECM loan is an equity-based loan product, it is not just a Home Equity Line of Credit (HELOC) or Home Equity Loan. A home equity loan requires monthly payments, whereas a HECM loan does not. You can also tap into more of your home equity with a HECM loan. Additionally, you can choose to take cash-out instead of taking a line-of-credit or use a HECM loan for purchase and only pay about 1/2 the sales price. See #10

Myth #6

You Will Be Forced Out of the Home By the Bank

False.

The bank cannot "force" you out of your home or take advantage of you in your later years. As long as you continue to pay your real estate taxes, home owners insurance, and your homeowners association fees (if any), then the bank cannot take your home. Period. HECM loans are "No Recourse" loans (see more below in #7).

Myth #7

You Will Outlive the Reverse Mortgage and be Homeless

False.

You cannot "outlive" a HECM loan. The duration of the loan is one of tenure, meaning you can live in the home until the death of the last borrower. No matter how much interest accrues, the bank cannot take your home because of how much you owe. HECM loans are "No Recourse" loans, meaning that the banks have no recourse if you wind up owing more than the house is worth. They also cannot go after your heirs for any overage!

Myth #8

My Cousin, Aunt, Friend, etc. Lost Their Home to a "Reverse Mortgage".

False.

I have heard this one quite a lot and in every case, it was untrue. Not one person has lost their home simply because they took out a HECM loan. Yes, they may have lost the home because they did not pay taxes, home insurance or HOA fees. But, they would lose ANY loan to foreclosure in that case. On a HECM loan, there is NO mortgage payment due, so there is simply no way for the bank to foreclose for nonpayment of your monthly mortgage.

Myth #9
I Can't Sell the House Later, Move, or Buy Other Homes

False.

Like any other loan, you can pay off the balance at any time. While it is highly recommended that you choose a HECM loan for your final residence, there is no "law" preventing you from changing your mind. However, if you move out of the residence, you must pay off the loan (no renting out a HECM-financed home). But, if you choose to move, you can sell the house, pay off the balance, and take out another HECM loan. You can also own other homes, but the HECM-financed property MUST be your primary residence.

Myth #10
I Can't Buy a House with a HECM Mortgage

False.

You can 100% buy a home with a HECM mortgage and this is, in MY opinion, the BEST use of the HECM product. Instead of cashing out on the equity in your existing home, you can dive right into the equity of a brand new home. Depending on a few calculations, you will pay somewhere between 40%-60% of the sales price of the home. The bank will cover the rest, up to the 2022 HECM loan limit of $970,800. and you never pay a single mortgage payment!

Myth #11

I Need Good Credit for a HECM Mortgage

False.

You DON'T NEED CREDIT to use a HECM loan. There is no FICO score requirement and no debt-to-income ratios to figure out. However, you cannot have any outstanding federal debt (IRS debt, student loans) and you cannot have had a federal loan foreclosed on within the past 3 years. The HECM is a cash-flow based loan and you must have some type of income to qualify (it does not have to be earned income, it can be social security, pension, retirement, investment, etc.). To qualify, you must have a residual income after all of your bills are paid based on your family size. Here in the south, that amount is $529 for a single borrower and $886 for a couple. If others live in the home, then the required amount of residual income increases.