The Differences Between a HECM and a HELOC

I previously discussed in earlier posts some of the details and considerations when a senior might be thinking of borrowing equity from their home and they have four options.

  • Refinance their home using a traditional mortgage – There will be a monthly payment
  • Do a Home Equity Line of Credit/HELOC – % only for five years then become fully amortized for remaining 10 years.   There will be a jump in the monthly payment.   “Payment shock”
  • Get a Fixed rate 2nd. Deed of Trust – Fully amortized monthly payment for 15 years.
  • Use a HECM/Home Equity Conversion Mortgage; a “reverse” mortgage.   No payments or loan term.  It is in effect as long as the borrower continues to occupy the home and/or they”pass” away.

Let’s examine the options a little bit closer.  The first three choices all require the borrower to qualify using their income and credit, plus they will have monthly mortgage payments.

Initially, the first 3 options are less expensive in closing costs, but there are risks associated with obligating oneself for a mortgage payment in the later years of their life.

If the borrower is currently employed and plans on working for many more years, then maybe the first 3 choices are ideal.  But what if you want to retire?  The mortgage payments won’t go “away”, the borrower will have to continue to make them each month.

Doing a traditional “cash-out” refinance is certainly an option to consider especially if the existing mortgage is at a high interest rate or it’s an Adjustable Rate Mortgage  ( who knows what will happen with interest rates in the future?  They will probably increase).  And of course, there is a monthly mortgage payment to be made.

Is this a particularly good option for a senior to continue to maintain an ongoing mortgage for many more years?

See what my clients are saying!

I will discuss the other three mortgages in my next post and each of them can be appealing depending on the borrower’s circumstances and what they are attempting to accomplish.


Continue Reading

Reverse Loans Offer a Solution to Seniors

This is the final post on a rather long article that discusses a recent report that was published by the Department of Housing and Urban Development that expressed concern about the amount of housing debt seniors are carrying.

Some made the decision in the last few years to either do a traditional mortgage and take some money out at the close of escrow or they applied for a LOC from their bank because they needed additional money for their monthly expenses.

The problem with this idea is that eventually they run out of that “cash” and still have a mortgage payment each month when a much better option would have been for them to apply for a Reverse loan.

Here is the remainder of the article that was written by Jason Oliva.

“The Home Equity Conversion Mortgage (HECM) enables homeowners age 62 and older to convert their home equity into tangible funds that can be used to pay a variety of living expenses, including paying off existing mortgage debt.

But although HECMs have undergone substantial changes in recent years that have made them safer products for borrowers, not many eligible homeowners are aware of these new updates, let alone know how a reverse mortgage could supplement their retirement.

“The HECM program currently serves a relatively small number of older homeowners, but many more households could potentially benefit from the program,” HUD writes. “Although FHA endorsed fewer than 1 million HECM loans between 1989 and 2015, HECM may be an effective option for some seniors looking to access their home equity.”’


Continue Reading

Buying a Home With a Reverse Mortgage

Although the ability to use a Reverse loan for purchasing a property has been available for quite some time, not too many seniors know about it and neither do Realtors.

But for a senior that wants to “down-size” from a large home into something smaller and more manageable, it is an ideal option to use for the new home without having to qualify using income, credit scores and debt ratios, as are necessary on traditional financing.

The FHA HECM loan not only can be used for purchasing but the proprietary  ( Not an FHA mortgage) Jumbo Reverse loan may also be used to purchase homes up to $6,000,000.00 for those seniors that are looking at more expensive properties above the HUD Lending Limit of $625,500.00.

Generally the buyer of the new property will be selling their current home and the funds from that sale will be applied to the down payment on the new purchase.

The actual Reverse loan amount that they will be entitled to receive, is calculated on the age of the youngest person and the purchase price of the new property.   And that figure will be used for the new loan and the buyer would need to come in with funds  ( down payment) per the difference between the sales price and the Reverse loan amount.

Using this option to purchase a property if you are a senior, is certainly much easier than going the conventional route of loan application.

Plus the escrow can close much quicker than a conventional loan.

If you want additional details about this option and or some figures, please contact me.



Continue Reading

How Does Bad Credit Affect Getting a Reverse Loan?

Since the crash of the Stock Market and the housing industry 8 years ago, it has become much more difficult to qualify for a mortgage than it was in the past.

With the advent of new regulatory changes and rules affecting both industries, the impact on a potential borrower has been significant.

By “significant”, I am referring to the enormous amount of documentation a potential borrower must submit to the Lender who they are applying with for a new mortgage.    A lot of people are very upset about the amount of paperwork and scrutiny they have to undergo in order to become approved for a mortgage.

But, these regulations and piles of documentation are not necessary ( There is now the Financial Assessment)  for a senior to provide if they are applying for a Reverse mortgage.   Because there are no payments on a Reverse loan, the applicant DOES NOT have to qualify using their FICO scores or Debt to Income Ratios.

(The Financial Assessment does require some bank statements or any statements showing cash reserves & verification that the borrower has made their property tax & Homeowners insurance payments on time for the previous 24 months.   And if not, they might be required to have an Impound account set up to make sure that they are paid in the future.)

As a matter of fact, even if they have poor credit or a BK and their income isn’t very much, they will qualify for the FHA HECM Reverse loan.   It’s just a matter of providing a letter of explanation for any derogatory credit.

I recently had a client who due to a very serious illness and the medical expenses associated with it, used up all of their credit cards to pay their mortgage payment and other monthly expenses and to cover what their insurance didn’t pay and eventually they had to file for a bankruptcy, plus they also owed money to the IRS.

They repaid the IRS, completed the bankruptcy and I was still able to have them approved for their Reverse mortgage and paid off the existing loan leaving them free of a monthly mortgage payment.

This is just one of many examples of how credit and income are irrelevant for qualifying for a Reverse loan.

And the BORROWER STILL OWNS THEIR PROPERTY.   The bank NEVER takes it when they pass away, the estate goes to the heirs.



Continue Reading

NY Times Part II, Reverse Mortgages

Initially, I found the opening paragraphs particularly toxic and quite often the typical response that people have to Reverse loans.

I thought to myself….oh no.   Not again.   People and many professionals are simply and horribly ignorant about the federal loan program and because of such a negative attitude, it can end up hurting a senior who could benefit from the loan program.

But the overall attitude of professionals and others, is gradually shifting away from these opinions as the writer states in his article.

Here is the remaining portion of the summary plus a link to the entire article.

NY Times: Reverse Mortgage Time is Coming

Posted By Elizabeth Ecker On September 28, 2014 @ 11:30 am In News,Reverse Mortgage

“The article cites several positives that have developed in recent months around the reverse mortgage market: the re-entry of BNY Mellon to the space this year following big bank exits of the past; the personal investments of two well-known economists and academics into one reverse mortgage startup company; and the embrace of a growing group of financial planners who at once would never have recommended reverse mortgages to clients but who today are incorporating them into retirement plans even for those who have saved and invested wisely for retirement.

Recent research conducted at The Ohio State University also bodes well for the loans, he writes, in shedding light on factors leading to defaults and being able to recommend product overlays that maybe able to reduce defaults by as much as 45%.

“Call the loans and the lenders and the executives who run them all the names you want,” Lieber writes. “But the tool they sell is one whose time is coming, and people who refuse even to consider a reverse mortgage in the coming years may do themselves a disservice.”

Click here to read the entire article:

Continue Reading
Reverse Loan Consultant