If you're a homeowner who is looking for ways to supplement your retirement income, you may have heard of a reverse mortgage. But have you heard of a Home Equity Conversion Mortgage (HECM)? Many people use these terms interchangeably, but they are not the same thing. In this post, we'll explore the differences between a HECM and a reverse mortgage.
First, let's define what a reverse mortgage is. It's a loan that allows homeowners who are 62 years or older to convert a portion of their home equity into cash. The loan is repaid when the homeowner sells the home, moves out, or passes away. The loan amount is based on the home's value, the homeowner's age, and the interest rate.
Now, let's talk about HECM. A HECM is a type of reverse mortgage that is insured by the Federal Housing Administration (FHA). It's the most popular type of reverse mortgage and is available to homeowners who meet certain criteria. The loan amount is based on the same factors as a traditional reverse mortgage, but there are some key differences.
One of the biggest differences between a HECM and a traditional reverse mortgage is that a HECM has a cap on the amount of money that can be borrowed. This cap is determined by the FHA and is based on the home's value, the homeowner's age, and the interest rate. Another difference is that a HECM requires the homeowner to receive counseling from a HUD-approved counselor before they can apply for the loan.
So, is a HECM the same as a reverse mortgage? The answer is no. A HECM is a type of reverse mortgage that is insured by the FHA and has some specific requirements. However, it's important to note that not all reverse mortgages are HECMs. There are other types of reverse mortgages that are not insured by the FHA and may have different terms and requirements.
In conclusion, if you're considering a reverse mortgage, it's important to understand the differences between a HECM and a traditional reverse mortgage. A HECM is a type of reverse mortgage that is insured by the FHA and has some specific requirements, while a traditional reverse mortgage may have different terms and requirements. As always, it's important to do your research and consult with a financial advisor before making any decisions about your retirement income.