What is the Difference Between a Reverse Mortgage and a HECM?

Reverse mortgages are becoming increasingly popular among older people who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U. S. Federal Government is called a Home Equity Conversion Mortgage (HECM) and is only available through an FHA-approved lender.

All HECMs are reverse mortgages, but not all reverse mortgages are HECMs. HECMs are reverse mortgages backed by the FHA and issued by an FHA-approved lender. Another advantage of a reverse mortgage over a Home Equity Line of Credit (HELOC) is the assurance that the HECM line of credit will remain open and available when needed. HELOCs are known to have suddenly declined or been completely closed, especially if the borrower has not been actively withdrawing funds from the loan.

This can be difficult because many borrowers prefer to have an available and open line of credit from which to withdraw money only when the need arises. Being forced to continue to actively borrow from the line of credit to maintain an open situation or to discover that the line of credit has been reduced or closed suddenly would be a frustrating inconvenience for anyone. So, what is the difference between a HECM mortgage and a reverse mortgage? To tell you the truth, there is no difference. In other words, they are the same; HECM is simply a rebranding of an old product. In order to qualify for a reverse mortgage, you must be at least 62 years old and own the property free of charge, or have a mortgage balance small enough to be liquidated by the proceeds of the reversed loan. The unused line of credit grows at current expected interest rates; therefore, taking an HECM at 62 gives your line of credit time to grow rather than waiting until 82, especially if expected reverse mortgage interest rates increase over time. Reverse mortgages are intended exclusively for seniors with no repayment requirements until the borrower sells their home or dies.

It allows them to collect part of the accumulated value of their home without selling their property or making monthly mortgage payments. Home equity loans and cashback refinancing are cheaper alternatives to inverted mortgages, for those who qualify. The economics of a HECM compared to a reverse mortgage sponsored by a private company will depend on the borrower's age and how long the borrower expects to live in or own the home. With a reversed home loan, the amount the homeowner owes the lender increases, not decreases, over time. If you're interested in a reverse home loan, you should compare loan options, fees, and interest rates from various lenders to ensure that you'll get the features of the loan you want and the lowest possible interest rate. With most reverse mortgages, you have three business days after closing to cancel the transaction for any reason without penalty.

After cancellation, the lender has 20 days to repay any money they paid to finance the reversed home loan.

Harry Lammel
Harry Lammel

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