What is a Reverse Mortgage?
A Reverse Mortgage is also known as a Home Equity Conversion Mortgage (or HECM)
So you’ve seen the commercials and are now asking yourself, “What is a Reverse Mortgage?” The acronym “HECM” (pron: heck-um) stands for a Home Equity Conversion Mortgage and is the type of Reverse Mortgage that is insured by the Federal Housing Administration (FHA). In 1988, the Reagan Administration through the U.S. Dept. of Housing and Urban Development (HUD) created the HECM Reverse Mortgage program. It is a home-equity loan for homeowners 62 years old and older. A New Mexico Reverse Mortgage helps the homeowner turn a part of the equity in their homes into tax free cash without having to make a mortgage payment, sell the home or give up title. Rest assured that the only type of Reverse Mortgage New Mexico Reverse Mortgage offers to the senior community is the HECM Reverse Mortgage. The borrower DOES retain ownership of the home and the home is passed to the heirs.
*A New Mexico Reverse Mortgage may allow you to:
- Gain Relief from the stress of monthly bills
- Eliminate your current mortgage payments (if you have one)
- Afford healthcare and medical expenses
- Buy a new home
- Increase your Retirement Income
- Extend the life of your Investment Portfolio
- strategically maximize your Social Security benefits
- Afford and continue to own your own home
- Gain financial flexibility
- Use the Tax-Free cash proceeds for anything
- In a nutshell… Improve the Quality of Your Lifestyle!
The Reverse Mortgage program is a unique financial tool often misunderstood by seniors and their families. In truth, it is not clearly understood by most… including Conventional loan officers! Two or three HECM’s per year does not make a specialist in this program. There are few companies and loan officers dedicated to this program. We believe you should work with specialists. So much in fact, that we (New Mexico Reverse Mortgage) included a list of our competitors here. Not only should you work with a NRMLA member, but you can borrow with confidence by working with a reverse mortgage professional.
Prior to January 2014 and unlike traditional “forward” home loans, there were no income requirements. The only requirements were:
- that you must be at least 62 years old,
- the home must be your primary residence,
- and you must have sufficient equity in your home.
Effective March 2, 2015, HUD instituted an additional “Financial Assessment” of the homeowners. These income and credit requirements are to assure that there is sufficient income and/or assets to pay for property taxes and homeowner’s insurance. It assures the continuance of the HECM Reverse Mortgage program for seniors in the future.
*Please note that the amount available varies and is dependent on multiple factors. It is unlikely that you will be able to utilize the proceeds all of the uses listed.
Who can get a Reverse Mortgage?
Any homeowner over the age of 62 may apply with New Mexico Reverse Mortgage. The borrower must occupy the home as their primary residence or be in process of buying a new home. Simply give us a call or shoot us an email.
How does a Reverse Mortgage work?
The HECM Reverse Mortgage allows you to pull your money out of your home (to use however you wish) while still having the confidence of this government regulated and guaranteed program that you still have a roof over your head. The home is still your home and your heirs will inherit the home upon your passing.
The application process is similar to any other loan application. And, if you have a current “forward” mortgage, it will be paid off with your new Reverse Mortgage, effectively eliminating any mortgage payment you presently pay. Now, you have extra money in your pocket because you are not spending it on a mortgage payment each month. Also, additional proceeds may be available! On the other hand, if your home has no outstanding lien, you can use New Mexico Reverse Mortgage to access a large portion of your equity. Other than your property tax and homeowner’s insurance bills, no monthly payments are required or expected.
None of the money you receive through a Reverse Mortgage is taxed as income. HECM proceeds are tax-free! They are tax free because loan proceeds are not taxed and you are simply pulling money (equity) out of a savings account (your home) that you already paid tax on years ago! You worked hard to save this money (equity) but it is in a form that is not liquid (not accessible).
As the homeowner, there are four ways to receive money through your New Mexico Reverse Mortgage:
- As a Line of Credit,
- In a “Lump Sum” disbursement,
- As a monthly payment (Term or Tenure defined below) or,
- Any combination of the above 3 options!
Term Payments – An equal sum of money over a fixed period of months or years.
Tenure Payments – Like term payments but they do not end until you are no longer occupying the home.
With a HECM Reverse Mortgage, you are not required to make monthly payments (other than property tax and homeowner’s insurance bills). So, over time, the mortgage amount owed grows. As your mortgage increases, the amount of equity you have left after selling or paying off the loan generally grows smaller. However, some clients choose to make payments into the HECM in order to preserve (or even add) equity back into the property. The amount owed at the end of a Reverse Mortgage (when you no longer occupy the home) is either the amount of the home’s value or the amount of the current mortgage – whichever amount is LESS.
It was mentioned earlier on this page, but it bears repeating, because the biggest misconception about the Reverse Mortgage program is that the home is no longer yours. THIS IS NOT CORRECT!!! As A New Mexico Reverse Mortgage client, you retain your place on the property’s title and continue to own your home. Assuming you live in and maintain ownership of the home until your death, your heirs WILL INHERIT the home. Please read this paragraph twice!
Taxes, Insurance & Maintenance?
If you own your home free and clear, are you required to pay property taxes? Of course you are; Uncle Sam always gets his nickel!
If you own your home free and clear, are you required to pay homeowner’s insurance? No, but you’d be foolish not to have it! Also, if you have any type of lien on the home, you are required to have it in place by that lender.
If you own your home free and clear, are you required to maintain your property? Yes, it is typically required by the city or county. You’ve heard of a property being “condemned”, right?
Once the New Mexico Reverse Mortgage in place, you will still be responsible for property taxes, insurance, normal home maintenance and home owner’s association fees (if applicable)… just like always! The difference is that no monthly mortgage payment exists and repayment of the mortgage is not required until you no longer occupy the house.
How is it paid off?
You or your heirs can never (and never means NEVER) be legally responsible for more than the home is worth. Even if the mortgage balance exceeds the value of the home, rest easy and know that as long as you follow the terms of the mortgage (pay your taxes, insurance, maintain your property, etc.) you cannot ever be kicked out of your home by the bank.
It’s true! With your New Mexico Reverse Mortgage, you are protected by what is called the “Non-Recourse” clause that is written into the Mortgage that is insured by HUD. You (or your estate) are not responsible for any amount over the value of your home. Also, your home can continue to appreciate just the same as today, increasing your equity as time progresses.
On a side note…
If you need assistance maintaining or upgrading your home, contact your city or county Department of Senior Services for help or guidance. Many times they offer services at no cost including home repair, maintenance, yard work, adding ramps and other safety features, utility assistance, meal programs and other valuable services. If you need assistance, give us a call and we’ll help you get in contact with an agency near you. Or, you can contact the State of New Mexico Department of Aging and Long Term Services at (505) 476-4799.
What could you do if your mortgage payment was eliminated, had additional cash or both?
Whether you just want to have more money to improve your quality of life or pay off bills and medical expenses, a reverse mortgage can give you immediate access to your money. Talk to a New Mexico Reverse Mortgage expert to learn even more about your question, “What is a Reverse Mortgage?” and how it can benefit you and your family.