You have read this term and now you are needing to know . . . What IS this term HECM? HECM is an acronym. An acronym is a word formed from the initial letter or letters of each of the successive parts of a compound term. Ok. There is the dictionary definition. Now, what IS this term HECM?
HECM is the acronym for a Home Equity Conversion Mortgage or Reverse Mortgage. A Reverse Mortgage enables you as the borrower to access a portion of the equity in your home for your use. It is an equity conversion that benefits the Senior. The key to the transaction is that there must be adequate equity in the property to enable a Reverse Mortgage ratios to work. The HECM or Reverse Mortgage enables you to take the inaccessible equity presently in your home and access it through the loan transaction and use it any way you desire or need.
The lender will charge an origination fee, FHA will charge a mortgage insurance premium and there are closing costs and in some cases servicing fees for the Reverse Mortgage. All of these fees become part of the balance of the loan provided by the lender. The balance of the Reverse Mortgage loan grows over time and there is interest charged by the lender which is added to the loan balance.
The borrower retains title to the property that is being used as the subject of the reverse mortgage until the property is sold. The borrower is responsible for paying all property taxes, homeowner insurance, any related home assessments and for maintaining the home. These loans are non-recourse and the borrower has no personal liability for payment of the loan debt. The lender will, however, enforce the debt through sale of the property if the borrower fails to pay property taxes and insurance on the property. The non-payment of taxes and assessments voids the non-recourse clause of the note.
Interest on a reverse mortgage is not deductible for purposes of personal income tax filing. Interest earned on a growth line of credit is taxable income. The proceeds of the home equity received through a reverse mortgage are considered taxable income.
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