Equity Release

6 Benefits of a Home Equity Conversion Mortgage (HECM)

Tom BurchnellReviewed by

Many seniors want to access the equity they’ve paid into their homes. If you’re one of them, a home equity conversion mortgage (HECM) might be a viable option for you. A home equity conversion mortgage is a type of reverse mortgage loan backed by the federal government and offers many benefits for those in the right situation.

In general, a HECM loan offers financial flexibility such as retirement supplementation for income and the elimination of a monthly mortgage payment to those who qualify.

In this blog, we’ll examine the top HECM benefits and discuss other options that allow seniors to access their home equity, such as a home equity loan alternative.

#1 Security of Government Backing

The first benefit of a HECM reverse mortgage is the security it offers borrowers in contrast with other reverse mortgages. The HECM is the only reverse mortgage loan insured by the federal government and thus can only be acquired through an FHA-approved lender.

This backing comes with a detailed vetting process to certify that you’re eligible for the program. To qualify, you must:

  • Be at least 62 years old
  • Live in the home in question
  • Not have defaulted on any federal debt
  • Owe very little, or nothing, on the home
  • Complete an information session with an approved HECM counselor

If you meet these requirements and your application is approved, your HECM loan will pay off any remaining mortgage owed on your home. The remainder of the money from the loan can be used for anything you’d like.

#2 Eliminate Monthly Mortgage Payments

HECM eliminates your monthly mortgage payment, replacing it with a new loan. You’ll pay the closing costs, loan origination, and third-party inspection or appraisal fees, although these can be financed as a part of your loan.

With a reverse mortgage, you don’t have to make any monthly payment on the loan itself—it will be paid off either when you choose to sell the home or when you pass away.

It’s important that you, as the borrower, must also keep the property in good condition throughout the life of the loan. Keep in mind that you’ll also be responsible for paying your property tax and the premium on your homeowner’s insurance.  

#3 Supplemental Income

One of the biggest HECM benefits is that it offers seniors is the supplemental retirement income you’ll draw from the new loan. Once you’ve been approved and your loan has been processed, you can use the funds for whatever you choose, including:

  • Home improvements or repairs
  • Paying off other debt
  • Living expenses
  • Travel

Many people haven’t saved quite enough for retirement, and access to your home equity can help bridge that gap.

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#4 Payment Options for Homeowners

 A HECM also allows you to select how you receive your funds. The five options for borrowers to choose from are:

  • As equal monthly payments as long as you’re alive or residing in the home
  • In monthly installments for a predetermined period of your choosing
  • From a line of credit accessed as needed
  • In a combination of a credit line and monthly payment

This gives you the freedom to select how to receive the money from your loan.

#5 No Minimum Credit Score

A HECM doesn’t have a minimum credit score requirement. Instead, your financial eligibility is based on your:

  • Income
  • Assets
  • Living expenses
  • Overall credit history

This means that you might be able to get a HECM loan even if you don’t qualify for other methods of home equity access. For example, this is a key distinction when comparing a HECM vs HELOC.

#6 Title Remains In Your Name

Finally, when you opt for a HECM loan, the title of your home remains in your name. You still own it and can choose to sell it at any time. The following home types are eligible for a HECM mortgage:

  • A single-family home that’s your primary residence
  • A 2–4 unit home, as long as you own and occupy one of the units
  • A HUD-approved condominium unit
  • Manufactured homes approved by the FHA

If you decide that it’s time to sell your home, you can use the HECM loan proceeds to purchase a new home. You’ll need to be able to pay any difference between the available HECM funds and the sales price of the new property. You’ll also be responsible for paying the closing costs and other related fees for the property you’re purchasing.

EasyKnock—Providing Benefits & Solutions for Seniors 

While there are many benefits to a HECM, it’s not the right choice for everyone. You may not meet the eligibility requirements or you might want to profit from a sale and pass on an inheritance. This is where EasyKnock steps in. We aren’t a reverse mortgage program. There aren’t any age restrictions nor will you have to pay back a home equity loan. 

Instead, we convert your equity in your home to cash and you stay in your home. How do we do that? You sell your home to us, convert the equity to cash, and lease it back. Connect with EasyKnock today to learn more about how we help homeowners.

This article is published for educational and informational purposes only. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process.

Sources: 

  1. HUD. Home Equity Conversion Mortgages for Seniors. https://www.hud.gov/program_offices/housing/sfh/hecm/hecmhome
  2. HUD. How the HECM Program Works. https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou
  3. Benefits.gov. What is Home Equity Mortgage Conversion? https://www.benefits.gov/benefit/709
Tom Burchnell
Product Marketing Director

Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast. 

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