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An HECM, or Home Equity Conversion Mortgage, is a type of loan insured by the Federal Housing Administration (FHA) that allows senior homeowners to withdraw a portion of the equity in their home. Today, HECMs make up more than 90% of all reverse mortgage loans. The rest of these loans are typically funded by nonprofit organizations and private institutions.
When looking for reverse mortgage information, most seniors will quickly discover that there are more to HECMs than they previously realized. Seniors who want a federally-insured loan will need to choose from two different loan products: the HECM Standard and HECM Saver. FHA also offers the HECM for Purchase program, which makes it possible for seniors to purchase a new primary residence with the proceeds of a reverse mortgage.
Reverse Mortgage Information: HECM Standard VS HECM Saver
The HECM Standard is FHA’s oldest reverse mortgage product. The HECM Saver was later introduced in October of 2010. While both options allow consumers to convert a portion of their home equity into cash, seniors looking for reverse mortgage information should note two important differences between the two loan products.
As the name suggests, the HECM Saver was designed to reduce costs. With the HECM Standard, seniors are required to pay an upfront mortgage insurance premium (MIP) equal to 2% of their claim amount. The HECM Saver only requires an upfront MIP of 0.01%. Both products, however, carry an annual MIP of 1.25%.
Unfortunately, along with reduced costs, the HECM Saver also offers lower payouts. On average, seniors will receive between 10 and 18% less with the HECM Saver. To choose a product, seniors must consider this information and determine whether lower costs or a higher payout is more important to their specific situation.
Reverse Mortgage Information on the Available Payment Options
In addition to choosing a loan product, borrowers must also decide how they wish to receive their proceeds. Loan proceeds must first be used to pay any liens, like an existing mortgage loan, against a property. If there are proceeds left over, borrowers can choose to receive their remaining proceeds several different ways.
Seniors can choose to receive their proceeds as a line of credit, term payments, tenure payments, modified term payments, or modified tenure payments. Borrowers who choose to receive term payments will receive fixed monthly payments for a specific amount of time. Tenure payments are monthly payments that continue for as long as a borrower remains in his or her home. Borrowers who choose to open a line of credit will have open access to their funds, which will increase as the home appreciates in value. The modified term and modified tenure options combine a line of credit with either term or tenure payments.
With all of the options available, these loans can seem complicated. Fortunately, seniors hoping to get a reverse mortgage have a great deal of reverse mortgage information available to them. Seniors who want more personalized information can contact an FHA-approved counselor or mortgage professional to gain a better understanding of these loans.