HECM refers to a reverse mortgage insured by HUD and the FHA. All of the reverse mortgages issued in 2009 and 99% of all volume in 2008 were HECMs. The FHAâ€™s HECM program contains special requirements like HUD counseling and a property value ceiling. The HECM property value ceiling is currently at $625K. This means that if the home is appraised for more, the loan amount will be based on the $625K value.
In 2010, the FHA added a third HECM product to its program, called the HECM Saver.Â Thus FHAâ€™s HECM program now includes the HECM Saver, HECM Standard, and HECM for Purchase.
FHA designed the HECM Saver as an alternative to the HECM Standard for the purpose of lowering loan closing costs and providing an alternative to a Home Equity Line of Credit (HELOC). The program is designed for those who would like to borrow a smaller amount than what is currently available with the HECM Standard.Â The HECM Saver features a lower initial Mortgage Insurance Premium (MIP) of .01% of the loan amount, where the HECM Standard requires a 2.0% MIP.
The amount of equity you can access with the HECM Saver is less than with the HECM Standard. For example, if a 74 year old homeowner using the HECM Standard initially accesses 68.9% of their home equity, then the same homeowner using the HECM Saver can only draws out 52.9%. Since the initial loan balance is significantly smaller, using the HECM Saver can leave you with more equity in your home. Alternately, the HECM Standard can allow you to access more equity.
Similar to a Home Equity Line of Credit (HELOC), the HECM Saver provides low up-front closing costs.Â However, unlike a HELOC, the HECM Saver does not require a monthly loan payment, has no credit score and generally no income requirements. With the HECM Saver, repayment is not due as long as you live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to FHA requirements.
A HELOCâ€™s interest rates are usually higher than a first mortgage loan and require monthly loan payments.Â Along with income and credit score requirements, a HELOC will also generally require you to maintain a certain level of equity in your home or the HELOC may be closed. Â And with the recent tightening of the financial market, many lenders have discontinued or significantly revised their HELOC programs, making access more difficult.Â With the HECM Saver homeowners have an alternative to the HELOC.
An informational website provided by Liberty Home Equity Solutions, Inc.Â NMLS #3313