The term “HECM Standard” refers to a traditional Home Equity Conversion Mortgage, which has been available since 1989. There are currently more than 500,000 issued HECMs in the market. The amount of money you receive is based on a table created by HUD and based on your age, the appraised current value of your home and interest rates. Fees can include an origination fee, an upfront mortgage insurance premium (MIP), a servicing set aside and traditional closing costs. Beginning April 1, 2013, this product option is only available with an adjustable interest rate. (For fees go to, What will a reverse mortgage cost me?). This product is desirable for senior homeowners who need the most money available to them.
HECM Saver is a lower-cost version of HECM Standard. The saving comes from a lower upfront mortgage insurance premium (MIP). The M.I.P. collected by the Federal Housing Administration on a HECM Saver is equal to 0.01, rather than 2% on a HECM Standard. On a $250,000 home, for example, you pay $25 in MIP under the Saver option, instead of $5,000 for a HECM Standard. The trade-off is that you receive 10-18% less money.
This product is desirable for people who don’t need as much money compared to HECM Standard, or don’t want to pay the higher fees. Because the fees are lower, and no monthly payment is required, it may also prove to be a better option than obtaining a home equity line of credit.
While the typical retiree uses a HECM to eliminate debts, pay for healthcare and/or cover daily living expenses, a growing segment of the senior population is using it to purchase a home that better suits their needs.
The advantage of using HECM for Purchase is that the new home is purchased outright, using funds from the sale of the old home, private savings, gift money and other sources of income, which are then combined with the reverse mortgage proceeds. This home buying process leaves you with no monthly mortgage payments.
While study after study reveals that an overwhelming percentage of seniors want to continue living in their current home for as long as possible, for some people that isn’t the best, or safest, option. HECM for Purchase offers a solution to downsize into a place that’s more easily navigable, possibly more energy efficient, with lower maintenance costs, or which is closer to friends and family.