FHA HECM loans are designed for borrowers who are 62 and older who want to take advantage of the equity built up in their homes. HECM, which stands for Home Equity Conversion Mortgage and is also known as an FHA Reverse Mortgage, allows qualified borrowers to apply for an FHA loan which uses equity as the security for the loan.
HECM loans have no monthly mortgage payments. The borrower pays off the loan in full if the property is sold or the borrower dies. Because of the structure of FHA HECM loans, the borrower can use the proceeds from the loan as a line of credit, choose to get monthly payments instead, or a combination of the two.
HECM loans have plenty of advantages for qualified borrowers, but many don’t realize these FHA mortgages can be refinanced under the right circumstances. Those who already have a reverse mortgage guaranteed by the FHA can refinance to add a spouse to the mortgage, which gives the borrowers an added advantage; if one person only is named on a HECM loan, the mortgage would be due if the borrower dies.
If the mortgage note has both occupants of the home named in the note, the second borrower is protected against the loan coming due–the terms of the reverse mortgage would be in effect as long as the surviving borrower continues to own the property.
HECM loans can also be refinanced under FHA rules to allow the homeowner to take advantage of any additional equity built up in the home since the original reverse mortgage.
In both cases, the borrower has the option to refinance into a standard FHA HECM loan or the more recent HECM Saver, which features savings on up-front mortgage insurance premiums.
The requirements for standard reverse mortgages and HECM Saver loans vary–check with your FHA regional loan center or loan officer to get details on which FHA reverse mortgage is best in your situation.
As with traditional FHA reverse mortgages, standard occupancy rules apply–the borrower(s) must certify that the home is the primary residence; summer homes do not qualify under these programs. FHA requirements also stipulate that in order to qualify for a reverse mortgage, the applicants must not be delinquent on any federal debt.