HECM Options

Single Product Option

Closing costs and interest rates may vary from lender to lender, but when shopping around for a reverse mortgage, you may find the product options are limited. That's because there is but one product option and it works like this. The amount of loan proceeds you can access during the first 12 months after closing is limited to 60 percent of the loan amount. For example, if you are eligible for a $100,000 reverse mortgage, you may only access $60,000. After the initial year has expired, you may access as much or as little of the remaining loan proceeds as you wish.

There are exceptions. You can withdraw a bit more if you have an existing mortgage, or other liens on the property, that exceeds the 60 percent limit. You must pay off these "mandatory obligations" as the government calls them, before qualifying for the reverse mortgage. You can withdraw enough to pay off these obligations, plus another 10 percent of the maximum allowable amount -- in which case that's an extra $10,000, or 10 percent of $100,000.

Single Payment Disbursement Option

Historically, HECM borrowers had to take all of the loan proceeds available to them.

You have the option to do a HECM “mini” that allows you to take less money at closing. If you are eligible for a $100,000 loan, for example, but don't want that much money, you can choose a single disbursement equal to 60 percent or less of that sum.

Unfortunately, if you wanted more money at a later time, you would not be able to access any additional funds. However, this is a great option for someone who wants to preserve the equity in the home by utilizing a smaller amount of funds.

For Purchase

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.