Good Government

by Doug Love

The Reverse Mortgage has shifted into a new gear. The loan program that allows people to tap their home’s equity for income can now be used to either buy or refinance a home. The program has a new name, too. It is now the Home Equity Conversion Mortgage, or HECM. In the past, the Reverse Mortgage gained a questionable reputation for some elements of the loan terms that have now been removed.

The HECM is a government-sponsored loan, and was created for people over 62 years old to refinance the equity in their home, or buy a new home, eliminate monthly payments, and use the money as a cash advance or monthly income. The loan terms now contain a guarantee that a borrower will never owe more than their house is worth. 

The program now also allows for people over 62 to buy a home and finance the debt as a HECM so they have no monthly payments and receive money instead. They can tap into their equity for expenditures on anything they want.

“The HECM completely changed my life,” says Carol Hennison. “After my husband passed, I couldn’t keep our home. The payments and upkeep were too much. I called my Realtor to prepare to sell my house and find a rental to move into. Bless her heart, my Realtor told me about this opportunity, and now I live in comfortably in a new home of my own without stress.” 

Carol sold her home and with the proceeds made a down payment on her newer, smaller place. She financed the purchase with a HECM, which allows her the choice of taking cash advances or receiving monthly payments. So, Carol receives the monthly payments, with the option of taking cash advances, as well.

“I have no loan payment and I receive monthly income,” she said. “I can’t believe it!”

The catch is that Carol’s loan balance grows over time, as she receives payments, and the loan balance could eventually exceed the value of Carol’s home. If that were to occur, though, the lender can never pursue her or her heirs for anything. The HECM program is designed to keep people like Carol in their homes and the payments she receives will continue until she moves or dies. If there aren’t enough proceeds from the sale of the house to pay off the loan, the government takes the loss.

John Baxton was behind on taxes and insurance for his house, and late on his mortgage payments. “The last thing I wanted to do was sell my house, but it looked inevitable,” he says. “Then my son heard about this program and I was saved.” Baxton refinanced into a HECM which ended his house payments and gave him monthly income, as well as cash to bring his taxes and insurance current.

“Now I can stay here in the home I love and live very comfortably.” he said. “It’s quite a reversal!”

Here’s the capper: The HECM now has an interest rate of 2.9%. Because it’s a unique government program, the interest rate levels for a HECM are exempt from the usual market controls and influences, so the government can set the rate at the lowest level within the marketplace.

Spread the word to anyone and everyone over 62 years old and tell them the government got this one right!