Years ago a reverse mortgage may have been taboo; however in today’s economy where retired households across the country face the possibility of a 28% decrease in their income level and four out of ten “retiree households” are already in a position where their income doesn’t cover their monthly financial expenses, as reported by MarketWatch, a reverse mortgage or a Home Equity Conversion Mortgage Saver (HECMS) may be beneficial.
The HECMS program was launched in Ocotober of 2010 by the Federal Housing Administartion (FHA) as an alternative to their Home Equity Conversion Mortgage, which was an expensive option with all sorts of upfront fees.
MarketWatch reports the benefits of a HECMS as such:
• The loan benefit can be taken as a line of credit, tenure payments for life or term certain, or a cash-out.
• It’s a non-recourse loan, meaning the liability to homeowner/estate is never more than the value of the home. The FHA insurance picks up the difference.
• Interest or principal payments are not required.
• The proceeds are tax free.
• The interest, when paid, may be tax deductible.
• The loan is not cancellable/callable (as with a home equity line of credit or HELOC)
• Unused line of credit grows over time based on LIBOR rate, independent of home value.
Requirements for a HECMS are the borrower must be atleast 62 years of age and the property must be the primary residence of the borrower.