Myths & Realities of a Home Equity Conversion Mortgage
As with many financial products, Home Equity Conversion Mortgage (HECM) loans can be complicated and there may be a number of misconceptions about how the product works. Do you know the myths vs. the realities?
Myth No. 1: The lender owns the home.
You will retain the title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet loan obligations such as living in the home, maintaining the home according to the Federal Housing Administration (FHA) requirements, and paying property taxes and homeowners insurance.
Myth No. 2: The home must be free and clear of any existing mortgages.
Actually, many borrowers use HECM to pay off an existing mortgage and eliminate monthly mortgage payments*.
Myth No. 3: Once loan proceeds are received, you pay taxes on them.
HECM proceeds are tax-free as it is not considered income. However, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Myth No. 4: The borrower is restricted on how to use the loan proceeds.
Once any existing mortgage or lien has been paid off, the net loan proceeds from your HECM loan can be used for any reason. Many borrowers use it to supplement their retirement income, delay receiving social security benefits, pay off debt, pay for medical expenses, remodel their home, or help their adult children. You have worked hard for this asset and prudence along with budgeting should be the proper approach to enjoying proceeds received from your HECM loan.
Myth No. 5: Only low income borrowers need HECMs.
The perception of the HECM as an assist for those with low income is changing - many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using HECMs as part of their financial and estate planning, and are working closely in conjunction with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.
*You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). W-061113-D
All loans subject to underwriting approval. Certain restrictions apply. Call for details. CrossCountry Mortgage, Inc. is an FHA Approved Lending Institution and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. To obtain a HECM, you must take the approved HUD approved counseling available at little to no cost and receive a certificate of completion that will be required during the application process. While you won’t make any mortgage payments, you will still be responsible for property taxes and homeowners insurance and upkeep of the property.