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Cash Account Plan
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The FHA-Insured
Reverse Mortgage
This program is also known as the Home Equity Conversion Mortgage "HECM"
What is a HECM? (FHA-Insured Reverse Mortgage)
A HECM is a special type of mortgage that enables you, as an older homeowner, to tap the equity you have in your home while giving you the maximum amount of flexibility to address your particular financial needs - - whether it be a lump sum of cash to pay an unexpected hospital bill or regular monthly income to supplement your cash flow. Unlike traditional home equity loans, no repayment of the HECM loan is required until you no longer occupy the home as your principal residence.
With a HECM, you borrow against the value of your home, and receive loan proceeds according to the income plan that you select. A description of these plans will follow. As a borrower, for a small fee, you may change payment plans as many times as you wish.
When you sell your home or vacate it for other reasons, the accrued interest and fees plus what the lender has paid you or on your behalf through the years is due and payable, usually from the proceeds from the sale of your home. Any proceeds in excess of the amount owed the lender belong to you or to your estate.
How does a HECM differ from a home equity loan?
While both HECMs and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences between the two types of mortgages. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, you must earn a monthly income great enough to make those payments. If you fail to make the monthly payments, the mortgage lender can foreclose on you, and you could be forced to sell your home.
With a HECM, you do not repay the loan as long as the home remains your principal residence,and your income is not considered when qualifying you for the loan.
Who is eligible for a HECM?
You, and any co-borrowers, must be at least age 62 and either own your home free and clear or have a very low outstanding mortgage balance. A free Education Session from a HUD-approved counseling agency is also required. Family members are strongly encouraged to attend these counseling sessions.
Must I pay off any loans or liens that are against the property?
All loans or liens must be paid off to get the HECM loan, but they can be paid off with HECM loan proceeds.
What are the minimum and maximum amounts that I can borrow?
The maximum amount you can borrow is based on a HUD formula that factors in the age of the youngest borrower, the expected interest rate, and the 'plan-adjusted value' for the particular county. The plan adjusted value is the lesser of the appraised value of your home or the plan-adjusted value for a one-family residence that can be insured by FHA in your area. There is no minimum borrowing amount. There is no upward limit on the value of the property.
What types of income plans are available with the HECM loan?
A borrower with a HECM may choose amoung six cash-advance options:
Lump Sum | Term | Tenure | Modified Term
Modified Tenure | Line-of-Credit
How will the amount of the monthly income be calculated?
How much you can receive in monthly income depends on the age of the youngest borrower, the expected interest rate, the plan-adjusted value defined above, and the length of time that you will be receiving income - - for a fixed period or for as long as you live in your home. The older you are, the larger your income is likely to be.
Will I have to pay fees to obtain a HECM?
Yes, you will pay normal closing costs, and a mortgage insurance premium - - which is divided into two parts: an upfront premium of 2% of the plan-adjusted value and 1/2% per year on your mortgage balance, -- and a servicing fee. You can finance all of the closing costs -- that is, these may be included in your loan balance so that you do not have to pay for them in cash. The borrower is responsible for insurance, taxes, and normal upkeep of the property.
Can I be forced to sell or vacate my home if the money I owe on the loan balance exceeds the value of my home?
No, as long as you continue to occupy the property as your principal residence. You cannot be forced to sell or vacate the property, even if the total amount you owe exceeds the value of the property or if the fixed term over which you received your payments has expired. No deficiency judgement may result from your HECM loan. FHA insurance covers any further financial obligation to the lender.
Will my heirs owe anything to the mortgage lender if I die?
Upon your death, the loan balance, and fees consisting of payments made to you or on your behalf plus accrued interest and fees, becomes due and payable. Your heirs may repay the loan by selling the property, refinancing the loan, or by paying off the HECM loan so that they may keep the home. If the loan exceeds the value of your property, your heirs will owe no more than the value of the property. FHA insurance will cover any balance due the lender. No additional financial claims may be made against your heirs or estate. You will never owe more than your property value!
If my home appreciates in value during the mortgage term, who will be entitled to that money?
Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs. Under a HECM you are legally required to pay back to the lender only the outstanding balance.
What if I decide to sell my home?
If you choose to sell your home, the outstanding loan balance becomes due and payable to the mortgage lender. You, or your estate, will receive any proceeds exceeding the loan balance.
Can I sell my home to my children and continue to live in it?
If you sell your home to your children or any other individual, the HECM will be due and payable at settlement. After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owners.
Is this a fixed rate loan?
There are no fixed rate HECM loans. The adjustable-rate mortgage (ARM) plan features monthly or annual rate adjustments with a cap on the amount that the interest rate may change over the life of the loan.
Will HECM payments affect my Social Security, Medicare, Supplemental Security Income, or Madicaid benefits?
HECM advances can be added to your liquid assests under some programs if not spent in the month received, and may affect your eligibility for some programs. We suggest you consult the local offices for these programs or any other to determine how HECM payments may affect your particular situation.
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