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Reverse Mortgage (HECM) Loans

A reverse mortgage is a type of loan that lets people 62 and older borrow against a part of their home's equity. Unlike with a traditional mortgage, instead of making monthly mortgage payments to the lender, the borrower receives money from the lender.

 

The loan doesn’t come due until they move out, sell the house, fail to meet the loan obligations, or die — in which case the heirs assume responsibility for the loan.

 

In a word, a reverse mortgage is a loan. A homeowner who is 62 or older and has considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. Unlike a forward mortgage—the type used to buy a home—a reverse mortgage doesn’t require the homeowner to make any loan payments.

 

Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home. Federal regulations require lenders to structure the transaction so that the loan amount doesn’t exceed the home’s value and that the borrower or borrower’s estate won’t be held responsible for paying the difference if the loan balance does become larger than the home’s value. One way that this could happen is through a drop in the home’s market value; another is if the borrower lives for a long time.