how a home equity conversion mortgage works
home equity conversion mortgages are a popular type of reverse mortgage in fact they make up the bulk of the reverse mortgage market generally reverse mortgage terms can vary with privately sponsored reverse mortgage products officially known as proprietary reverse mortgages potentially allowing for higher borrowing amounts with lower costs than hecms hecms however will typically offer lower interest rates for borrowers the economics of a hecm versus a privately sponsored reverse mortgage will depend on the borrower s age and how long the borrower expects to live in or own the home many types of reverse mortgages will exclusively target seniors with no requirements for repayment until the borrower sells their home or dies 1a hecm can also be considered in comparison to a home equity loan a home equity loan is not dissimilar to a reverse mortgage since borrowers are issued a cash advance based on the equity value of their home which acts as collateral however with a home equity loan the funds have to be paid back usually in steady monthly interest payments shortly after the funds are disbursed 3the maximum hecm loan limit in 2023 up from 970 800 in 2022 45while hecm loans do not require borrowers to make monthly payments certain fees are associated with the closing and servicing of the loan borrowers also have to pay mortgage insurance premiums although these premiums and fees can be rolled into the loan this lowers the amount of equity a borrower can tap referred to as the net principal limit 2who is eligible for a home equity conversion mortgage hecm the federal housing administration sponsors the home equity conversion mortgage and provides insurance on the products the fha also sets the guidelines and eligibility for these loans borrowers can only obtain hecms from banks where the fha sponsors the product 1 to obtain a home equity conversion mortgage a borrower must complete a standard application to obtain approval a borrower must meet all of the requirements set by the fha they must mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report to the consumer financial protection bureau or with the u s department of housing and urban development hud 6in addition the property must be one of the following 