Here at NewStyle Communities, nearly 40% of our homeowners have used the Home Equity Conversion Mortgage (HECM) to purchase one of our maintenance-free homes! They love the savings – and the peace of mind. Here’s a guideline for choosing a HECM.
What is an HECM?
The HECM for Purchase program is an age-based mortgage insured by the FHA for folks age 62 and older. Unlike a traditional mortgage, no monthly payments are made; instead the payments are deferred and the loan balance increases over time. Since the loan is insured by the FHA, neither the borrower(s) nor their heirs are personally liable for the debt. In short, you can own a new home by making a one-time payment equal to about half the price of the home – and have no mortgage payment.
What does it really mean?
Let’s say you use a HECM to purchase your dream home, and then decide to move in 10 years. When you sell your home, you will receive 100% of the net proceeds after paying off the loan balance at the time of the sale.
This is exactly how a traditional mortgage works.
So why choose an HECM?
The primary benefit of using an HECM is having more money during your living years. Since you will not be paying a monthly payment to a mortgage company, you increase your monthly cash flow.
The secondary benefit is for your heirs. What if, at the time of your passing, your loan balance is greater than the value of your home? In a traditional mortgage scenario, your heirs would be forced to sell the home at a loss and cover the difference. However, the terms of an HECM mandate that neither you nor your heirs are personally liable to cover the difference if your home is sold for a loss. Simply put, no one will be coming after your estate for a settlement.
How would the HECM work for me?
Check out the matrix table on our Financing page to get a snapshot of what’s possible using an HECM based on your age and purchase price of your new home. For example, you might be able to purchase a $300,000 home with a one-time payment (at closing) of $136,800 and never make a monthly mortgage payment.