The HECM allows home-owners, ages 62 and better, to convert part of their home equity into tax-free proceeds. There are no required monthly mortgage payments on a HECM but the homeowner must continue to pay for property taxes, insurance and any other required assessments. There is no pre-payment penalty if the consumer ever chooses to pay the loan back in full. Repayment of the loan can never exceed the home’s value and the heir’s will never inherit a debt, unless they choose to retain the home as their own property. The borrower/s always retains title to the home and no repayment is required until the borrower(s) either permanently leaves the home, fails to maintain the property or fails to pay the property taxes and insurance.

Because the proceeds are a tax-free loan, there is no effect on Social Security or Medicare benefits. However, income-based programs may view the HECM as an addition cash flow source. Therefore, it is always best to consult an advisor when receiving benefits from an income-based program before pursuing the HECM.
The loan amount of the HECM is based on the age of the youngest borrower, the home value, and current interest rates. Borrowers must attend HUD-certified counseling prior to applying for a HECM loan.

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