You’ve built all this equity in your home over the years, but when is the right time to access it? If you’re in the golden years of your life and need cash for retirement or other costs, a Home Equity Conversion Mortgage (HECM) might be right for you.
A HECM (Home Equity Conversion Mortgage) is a type of reverse mortgage available to older homeowners aged 62 and up. It allows them to tap into the equity in their home, converting it into cash or a line of credit. This might frighten you, getting into debt at this stage of your life. But it’s actually quite safe and secure. Here’s why you should consider a reverse mortgage and what you should look out for.
What Is A Home Equity Conversion Mortgage Loan?
The Home Equity Conversion Mortgage (HECM) is a loan that the government insures. It allows seniors who are 62 years or older to turn their home equity into cash. This cash can be used for any purpose, such as covering medical expenses, making home improvements, or supplementing retirement income.
Unlike other types of reverse mortgages, HECM loans do not require monthly payments. Instead, the loan balance is paid when the home is sold or when the borrower passes away or moves out.
When Is The Best Time To Get A Home Equity Conversion Mortgage?
The best time to get a HECM will depend on a few factors, including your current financial situation and any plans you have for the future. Here are some things to consider when deciding if now is the right time for you to get a HECM:
When You Own Your Home Outright
For homeowners that want to access their home equity without selling, a HECM loan is a great option. A HECM allows you to tap into your substantial home equity in one lump sum or as a line of credit. This can be beneficial for making large purchases, consolidating debt, supplementing retirement income, or even weathering economic uncertainty.
It’s important to consider the terms and costs associated with this type of loan. You’ll need to have adequate financial resources to make payments on the loan balance since the loan accrues interest over time. It’s essential to speak with an experienced HECM specialist and discuss the potential risks and rewards before taking advantage of this financial product.
When You’re 62 Years or Older
After years of hard work and dedication, most retirees have earned the right to enjoy their golden years with ease. For seniors 62 or older, one way to secure not only peace of mind but financial stability is through a Home Equity Conversion Mortgage. A HECM unlocks the value of your home and acts as an alternate source of income easily accessible when needed.
It also allows you to remain in your current residence for as long as you’d like to and can be structured in many ways depending on your individual needs and desires. Whether you’d like to make home repairs, upgrade kitchen appliances, take a vacation with family or just keep it handy for added security, a HECM provides the flexibility and dependability many older adults seek.
When You Have a Low Monthly Mortgage Payment
If you’re someone who purchased a home late in life and are on a lower or fixed income, chances are that your monthly existing mortgage payments are low. However, you should consider whether a HECM suits your current financial situation. With a HECM, you can unlock equity from the value of your home to make repairs, eliminate debt, and even supplement retirement income – all without having to move out of your house!
Although these loan options usually carry higher interest rates than traditional mortgages, if you have the financials to pay them off, those fees can be justifiable. So if your existing mortgage payment is already low, you should explore whether taking out a HECM might be a beneficial loan option for you.
When You Need Money
Labeling home improvements, medical bills, and other expenses as “economic shocks” is an understatement – such costs can feel more like tsunamis at times. Thankfully, there is a product designed to help homeowners bridge the gap between their available funds and what’s required for these unexpected tasks. A HECM provides access to a percentage of a person’s home equity that can be used to cover such expenses.
It also allows borrowers to stay in their homes while they pay their way out of whatever financial catastrophes have occurred. If you find yourself pressed for cash in light of life’s surprises, consider looking into the benefits of a HECM today.
When You Want to Leave a Legacy for Your Heirs
Leaving something behind for your heirs is an incredibly important part of life. HECMs allow seniors to access their home equity tax-free. A HECM can provide retirees with financial security as well as peace of mind knowing that they can do something special for their children after they’re gone.
Not only does it give future generations a legacy to be proud of, but it allows older homeowners to remain in their homes without having to worry about increasing expenses eating away at retirement savings. A HECM guarantees a secure retirement and makes sure a family’s legacy will last for generations to come.
When You Have Good Credit
If you have good credit, then that’s yet another good time to get a home equity conversion mortgage. This is because your credit score will play a big role in determining the interest rate on your loan.
The better your credit score, the lower your interest rate will be. And, since home equity conversion mortgages can have lower interest rates than other types of loans, this can save you even more money in the long run.
When You Plan on Staying in Your Home for a While
If you plan on staying in your home for a while, then that’s yet another good time to get a home equity conversion mortgage. This is because these loans typically have no prepayment penalties, which means that you can pay off your loan at any time without having to pay any extra fees.
Additionally, if you do sell your home before the loan is paid off, you can often roll the remaining balance into your new mortgage, which can save you even more money.
When Your Current Income Is low
If you are retired or have limited income, now may be one of the best times to consider getting a HECM. A HECM can provide financial stability and flexibility in retirement as it allows seniors to access their existing home equity. This can be done without having to move out of their house or take on extra debt.
Furthermore, since HECMs are insured by the Federal Housing Administration (FHA), borrowers can receive a fixed interest rate for the life of their loan, meaning they won’t have to worry about fluctuating rates that could increase their payments over time. Also, many lenders offer special HECM programs designed to benefit homeowners with low incomes.
If Your Current Interest Rates Are High
If your current mortgage interest rates are too high, a HECM loan might be a good solution for you. HECM interest rates are very low at the moment and can help you save money over the life of your loan. HECM loans have a fixed interest rate, so you don’t need to worry about rising rates in the future.
We recommend getting an estimate from our experienced team to determine if this is an option for you. You can also use our mortgage calculator to get an idea of what your monthly mortgage payments would be with a HECM loan. Regardless of what you decide, our team is here to help you through the process and answer any questions you may have.
When Your Current Debt Is High
If you have high levels of debt, getting a HECM is a great way to reduce your financial burden. A HECM is a type of reverse mortgage that enables homeowners who are 62 years or older to access the equity in their home and convert it into usable cash to help pay off their existing debt.
With a HECM, you don’t have to make any payments until the loan is due and payable.
Furthermore, homeowners are not obligated to pay back more than their home is worth at the time of closure or sale. This means that if your home declines in value after taking out a HECM, you won’t owe more than the home is worth.
You can use a HECM to pay off your current debt and free up cash flow for other expenses. Depending on the amount of equity in your home, you may be able to reduce your total debt burden significantly or even eliminate it completely.
Consider a Home Equity Conversion Mortgage
If any of these situations apply to you, it might be time to consider a home equity conversion mortgage. This type of reverse mortgage can give you the money you need without having to sell your home or take on additional debt. And because the loan is repaid when you die or move out of your home, it can also provide financial security for your heirs.
If you’re interested in learning more about reverse mortgages, contact one of our experts today. We can answer all your questions and help you decide if a reverse mortgage is right for you. Start your application today!