Understanding How a HECM Loan Works and How It Can Help You Buy a New Home


If you’re exploring options to make the most of your home’s equity in your retirement years, you’ve probably heard about reverse mortgages, or more specifically, the Home Equity Conversion Mortgage (HECM). If the idea of a reverse mortgage makes you uneasy, you’re not alone. Many people remember the reverse mortgages of the 80s and 90s, which often left borrowers and their families in a tough spot. But today’s HECM loans are much safer, heavily regulated, and designed with your best interests in mind.


Let’s walk through what a HECM loan is, how it can actually pay you money each month, and how your beneficiaries can still receive the remaining equity in your home after you’re gone.


What Exactly Is a HECM Loan?

A HECM loan is a type of reverse mortgage specifically designed for homeowners aged 62 and older. It allows you to tap into your home’s equity—the value your home has accrued over time—without having to sell your home or make monthly mortgage payments. Instead of you making payments to a lender, the lender pays you. The loan is typically repaid when you no longer live in the home, usually because you’ve moved out or passed away.


How Can a HECM Loan Pay Me Monthly?

Let’s get to the part where a HECM loan can actually pay you money each month. Imagine you’ve built up a lot of equity in your home over the years, but you’re now living on a fixed income. Instead of selling your home and moving, you decide to take out a HECM loan.


Here is an example to make it clearer:


Example:

Suppose you own a home worth $400,000, and you’ve paid off your mortgage completely. You decide to take out a HECM loan. Based on your age, home value, and current interest rates, the lender determines that you can borrow $200,000 of your home’s equity. You can choose to receive that $200,000 in a variety of ways:


  • Monthly Payments: Let’s say you decide to receive $1,000 a month. The lender will deposit $1,000 into your bank account every month, providing you with a steady stream of income.
  • Line of Credit: Alternatively, you could choose to set up a line of credit, allowing you to withdraw money as you need it. If you don’t use all of the available funds, the remaining amount can actually grow over time.
  • Lump Sum: If you prefer, you can take the entire $200,000 upfront, though this isn’t as common unless you have a specific large expense in mind.


The great thing about a HECM loan is that as long as you live in your home and keep up with basic responsibilities like paying your property taxes and homeowners insurance, you don’t have to pay the loan back. The loan balance grows over time as interest and fees are added, but you won’t owe anything until you sell the home, move out, or pass away.


How Does HECM for Purchase Work?

Now, what if you want to move? Maybe you’re thinking of downsizing, or you’d like to live closer to family. This is where HECM for Purchase comes in. It lets you use a HECM loan to buy a new home without taking on monthly mortgage payments.


Example:

Let’s say you sell your current home and pocket $300,000 from the sale. You find a new home that costs $400,000. Instead of using all your sale proceeds and taking out a traditional mortgage, you could put down about $200,000 (the required down payment varies) and use a HECM for Purchase loan to cover the rest. You move into your new home, and just like with a regular HECM loan, you don’t have to make monthly mortgage payments.


What Happens When I Pass Away?

One of the biggest concerns people have about HECM loans is what happens when they pass away. The good news is that your heirs won’t be left high and dry.


Here’s how it works:
When you pass away, your heirs have a few options:

  • Sell the Home: They can sell the home, use the proceeds to pay off the HECM loan, and keep any remaining equity. For example, if the loan balance is $250,000 and the home sells for $400,000, your heirs would keep the $150,000 difference.
  • Keep the Home: If they want to keep the home, they can pay off the loan, usually by refinancing it with a traditional mortgage.
  • Walk Away: If the loan balance exceeds the home’s value (due to a drop in market prices, for instance), your heirs can simply walk away. The loan is non-recourse, meaning the lender can’t go after your heirs or your estate for more than the home is worth.


Today’s HECM loans are designed with safeguards to ensure your family won’t be burdened, and your heirs can still benefit from any remaining equity in the home.




Trust Deadman Realty to Help You Navigate Your HECM Options



At Deadman Realty, we know how important it is to make the right decisions, especially when it comes to your home and financial security. We’re here to help you understand all your options with HECM loans, whether you’re looking to stay in your current home or purchase a new one.


We have the experience and dedication to guide you through every step of the process, ensuring that you—and your loved ones—can make the most of your home’s equity while keeping your financial future secure. Reach out to us today, and let’s explore how a HECM loan can help you achieve your goals.

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