Reverse Mortgage Basics
HECM BENEFITS
The HECM program provides the widest array of cash-advance choices. You can take all of your loan as:
- a single lump sum of cash; or as
- a “creditline” account of a specific dollar amount that you control, that is, you decide when to make a cash withdrawal from this account, and how much cash to withdraw; or as
- a monthly cash advance for a specific period of time, or for as long as you live in your home.
In addition, you can choose any combination of these options, and change your cash advance choices at any future time.
Loan Amounts
The amount of cash you can get depends on your age, current interest rates, and your home’s value. The older you are, the more cash you can get. But if there is more than one owner, the age of the youngest is the one that counts. The lower interest rates are when the loan closes, the greater your loan amount will be.
In general, the greater your home’s appraised value, the more money you can get. But the value is subject to limits that vary by county, as defined in Section 203b of the National Housing Act. In 2005, these “203b” limits ranged from $200,160.00 in most non-metro areas to $362,790.00 in many urban areas. These limits are subject to change at least annually, and HUD is studying the feasibility of a single national limit for HECM loans.
If your home is worth more than the limit for your county, you are still eligible for a HECM loan. But the amount of money you can get is based on your county limit, not on your home’s actual value. For example, if your home is valued at $200,000 and your county limit is $175,000, then your cash advances are the same as they would be if your home were valued at $175,000.
The amount of money you can get from a HECM loan also depends on how you want it paid to you: lump sum, creditline, monthly advance, or some combination of these three types of cash advances.
Lump Sums & Credit Lines
Table 1 shows how much you could get from a HECM if you take it all as a single lump sum of cash or as a creditline:
- if the value of your home (or the 203-b limit in your county, whichever is less) is $150,000, $200,000, or $250,000;
- if the expected interest rate on the loan is 6%, 7%, or 8%;
- if the age of the youngest borrower at closing is 65, 70, 75, 80, 85, or 90; and
- if the servicing fee is $30, closing costs are $2,000, and the origination fee is 2% of your home value or 203-b limit, whichever is less.
You can divide the amounts in Table 1 between a lump sum and a creditline. For example, a 75-year-old borrower living in a $200,000 home getting a HECM loan at 7% expected interest could select:
- a lump sum or creditline of $107,715; or
- any combination of lump sum and creditline that totals $107,715, for example, a lump sum of $20,000 and a creditline of $87,715.
