Pros of HECMs
A few potential HECM loans benefits include:
- No required monthly payment: Payments are completely optional – you can pay interest only, principal and interest or no payment at all.
- No minimum credit score: There are no credit score requirements to qualify.
- You can use the money for any purpose: There are no restrictions on how you spend the money you get from your HECM.
- No tax: You don’t have to pay income tax on the money from your HECM.
- Offers retirement protection: You can get guaranteed income for life with a HECM, provided you remain in your home. During a market downturn, you won’t have to worry about pulling from your retirement accounts.
- HECM programs are federally mandated: The terms of a HECM reverse mortgage and associated expenses are consistent across the country.
- FHA-insured: The FHA insures all HECMs. If your mortgage is more than your home’s value, the FHA protects you.
- You retain 100% ownership of the home: When it’s time to sell your home, any remaining equity after paying the mortgage belongs to you. If your heirs sell the property after your death, they can keep the remaining equity. They also have up to 12 months to pay off the loan after you pass.
Cons of HECM
Some of the potential disadvantages of getting a HECM include:
- You have to live in your home: When you get a HECM, your property must be your principal residence for much of the year. You’ll have to pay back the HECM if you sell the home or want to move. Just like with a traditional mortgage.
- There’s a minimum age: The youngest borrower needs to be at least 62-years-old to qualify for a HECM. In other words, if you’re 65 and your spouse and co-owner is 60, you need to wait for them to turn 62 before applying for a HECM.
- You need to take care of your home and pay taxes: You’ll have to pay real estate taxes on your property. You’ll also need to maintain the home and contribute to its upkeep. No different than what you are currently doing.
- There are a lot of reverse mortgage scams: Be on your guard when applying for a reverse mortgage, as some are less legitimate than others. Be cautious of signing anything unless you fully understand the terms. It’s a good idea to work with a licensed advisor like Senior Lending when going through the process. Your advisor will help you understand your obligations and the rules of HECMs.
- You might lose government aid: While a HECM isn’t counted as income for tax reasons, the money you receive from your HECM can affect your ability to qualify for Supplemental Security Income or Medicaid. Carefully consider the effects of losing your benefits if you were to take out a HECM.
