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The Home Equity Conversion Mortgage


The HECM is the only reverse mortgage insured by the federal government. HECM loans are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA tells HECM lenders how much they can lend you, based on your age and home value. The HECM program limits your loan costs, and the FHA guarantees that lenders will meet their obligations.
HECMs Versus Other Reverses
HECM loans generally provide the largest loan advances of any reverse mortgage. HECMs also give you the most choices in how the loan is paid to you, and you can use the money for any purpose. Although they can be costly, HECMs are generally less expensive than privately insured reverse mortgages. These other  reverse mortgages may have smaller fees, but they generally have higher interest rates. On the whole, HECMs are likely to cost less in most cases. A notable exception may be the reverse mortgages now being developed by some credit unions.
The only reverse mortgages that always cost the least are the ones offered by state or local governments. These loans typically must be used for one specific purpose only; for example, to repair your home or to pay your property taxes. They also generally are available only to homeowners with low to moderate incomes. Part 4 of this booklet discusses reverse mortgages other than HECMs.
HECM Eligibility
HECM loans are available in all 50 states, the District of Columbia, and Puerto Rico. To be eligible for a HECM loan:
• You, and any other owners of your home, must be aged 62 or over, live in your home as a principal residence, and not be delinquent on any federal debt.
• Your home must be a single-family residence in a 1- to 4-unit dwelling, or part of a planned unit development (PUD) or a HUD-approved condominium. Some manufactured homes are eligible, but most mobile homes are not. Cooperatives are expected to become eligible by the end
of 2008.
• Your home must meet HUD’s minimum property standards, but you can use the HECM to pay for repairs that may be required.
• You must discuss the program with a counselor from a HUD-approved counseling agency; information on HECM counseling appears in Part 5 of this booklet.
HECM Benefits
The HECM program provides the widest array of cash advance choices. You can take your entire loan as a:
• single lump sum of cash; or
• “creditline” account of a specific dollar amount that you control, that is, you decide when to make a cash withdrawal from this account, and how much cash to withdraw; or as a
• monthly cash advance for a specific period of time, or for as long as you live in your home. In addition, you can choose any combination of these options, and change your cash advance choices at any future time.
Loan Amounts
The amount of cash you can get depends on your age, current interest rates, and your home’s value. The older you are, the more cash you can get. If there is more than one owner, the age of the youngest is the one that counts. The lower the interest rate, the greater your loan amount will be. In general, the greater your home’s appraised value, the more money you can get. However, the value is subject to a limit of $417,000 in November of 2008, and this limit is subject to change every January. If your home is worth more than $417,000, you are still eligible for an HECM loan, but the amount of money you can get is based on $417,000, not on your home’s actual value. For example, if your home is valued at $500,000, then the amount you can borrow is the same as it would be if your home were valued at $417,000.
(The $417,000 limit does not apply to parts of Hawaii, which have higher limits. But it does apply to the other 49 states plus the District of Columbia and Puerto Rico.)

Lump Sums & Creditlines
Table 1 shows how much you could get from a HECM if you take it all as a single lump sum of cash or as a creditline, if: • the value of your home is $150,000, $250,000, or $350,000;
          the expected interest rate on the loan is 6%, 7%, or 8%;
          the age of the youngest borrower at closing is 65, 70, 75, 80, 85, or 90; and • the servicing fee is $35, closing costs are $2,500, and the origination fee is the maximum allowed by HUD (see p. 13). You can divide the amounts in Table 1 between a lump sum and a creditline. For example, a 75-year-old borrower living in a $250,000 home getting a HECM loan at 7% expected interest could select:
          a lump sum or creditline of $135,484; or
          any combination of lump sum and creditline that totals $135,484, for example, a lump sum of $30,000 and a creditline of $105,484.