|Baby Boomers – those Americans born after 1945 – now make up about 30 percent of the United States population, and they are rapidly swelling the ranks of new retirees. That is one of the main reasons the unique FHA-insured Home Equity Conversion Mortgage (HECM) is becoming increasingly popular. The new, innovative HECM is the only reverse mortgage insured by the U.S. government, and it is the first reverse mortgage designed to facilitate purchases of homes for those who are ready to downsize their way into their golden years.
The mortgage was introduced at the end of 2008 to meet the needs of those worried about their finances as they approach retirement age, and the launch of the HECM was part of the Housing and Economic Recovery Act stimulus package. An HECM is an ideal choice for those with substantial home equity who want to sell and move, but do not want the burden of a new mortgage and years of future payments.
To understand the attraction of the HECM, it helps to understand how and why conventional reverse mortgages are used. The basic premise of a reverse mortgage is that the mortgage company pays the homeowner – and not the other way around.
· A typical reverse mortgage lets a homeowner convert a portion of the equity in their home into cash. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower stops living in the home – which often means until death.
· Traditional reverse mortgage products are sold by mortgage companies and banks, and to take out a reverse mortgage the homeowner must be at least 62 years old and be living in the home as their primary residence.
· The goal of a reverse mortgage is to give the homeowner access to their home equity without having to actually sell their home or take out a second mortgage.