Type of Reverse Mortgages

TYPES OF REVERSE MORTGAGES

There are two types of Reverse Mortgages, a HECM and a Jumbo, and there are several programs within each category.

HECM stands for Home Equity Conversion Mortgage and it is a federally insured home loan. A HECM Mortgage is administered through the Housing and Urban Development Agency (HUD) and is insured by the Federal Housing Administration (FHA).

The HECM is a federally regulated loan for homeowners age 62 and older that allows you to manage the equity in your home or purchase a new home. The HECM is a safe way for you to access a portion of the equity in your home with the option of never making a mortgage payment. Notice that option is in Bold;  that’s because you can make your payment if you want and, if you have the ability, we encourage it.

HECM One-Month Adjustable Rate Line-of-Credit

This is a variable rate mortgage that can adjust based on the index on a monthly basis with a lifetime rate change cap of 5%. The entire loan is a Line-of-Credit (LOC) which goes in first position, and you can pay it down whenever you wish. Additionally, the available portion of the LOC actually grows every year at the same interest rate that is being charged on the used portion of the LOC. For instance, if you had a $200,000 LOC with a 5% interest rate, used $100,000 of it and had a $100,000 available, due to compounding interest, in year number two you would have over $105,000 available in your LOC. This is an extremely powerful retirement and risk management tool.

HECM Fixed Rate

Fixed rate remains the same through the life of the loan. One-time lump sum at closing is the only disbursement option and is limited to 60% of the Principal Limit or mandatory payoff obligations plus 10% of the total Principal Limit.

The Jumbo Reverse Mortgage is NOT federally insured but works very similar to a HECM. This is a proprietary loan that, just like the HECM, is non-recourse (you can never owe more than the home is worth). Because the Jumbo does not have FHA insurance, the closing costs tend to be lower than the HECM. The Jumbo allows loan amounts up to $6 million.

Jumbo Fixed Rate
The borrower can choose from several different fixed rates; for each step up in rate, the borrower will create more access to funds.

Jumbo Adjustable Rate Line-of-Credit
Just like the HECM Adjustable Rate Mortgage, the Home Safe has a fixed margin, is tied to an index and the entire loan is a Line-of-Credit (LOC) in first position which you can pay down whenever you wish.