Table Of Content:
- What is the Process of a HECM Reverse Mortgage?
- The Fundamentals of HECMs
- Who Can Get a Reverse Mortgage?
- Withdrawals in the First Year Are Restricted
- Set-Aside Funds for Taxes and Insurance
Because of the high number of reverse mortgage defaults in the past, the Federal Housing Administration imposed limits and criteria on Home Equity Conversion Mortgages (HECMs), including:
a limit on how much a borrower can borrow in the first year, and If there’s a danger the homeowner won’t be able to keep up with the tax and insurance costs, a set-aside account is required.
Before you apply for a reverse mortgage in Alberta, you should understand how they function and the dangers and regulations that come with them. You should also be on the lookout for reverse mortgage scams.
If you learn more about this type of loan, the benefits, and drawbacks, as well as all of the requirements and restrictions, you may reconsider applying for one.
The Home Equity Conversion Mortgage was developed by the Federal Housing Administration (FHA) as one of the earliest types of reverse mortgages (HECM). A HECM is the most common reverse mortgage product, accounting for over 90% of the total market.
A HECM reverse mortgage often provides a borrower with monthly payments or a line of credit from the lender. The loan is then made up of these payments. Each time the lender sends payment or the borrower draws on the line of credit, the principal debt of the loan grows until the borrower achieves the maximum loan amount. Borrowers can also obtain a reverse mortgage in the form of a lump-sum payment or a combination of monthly payments and a line of credit. The loan amount is determined by the equity or sale value of the home.
Reverse mortgages are only offered to homeowners who meet the following criteria:
- are at least 62 years old
- use the property as your primary residence, and
- own the house entirely or have a considerable amount of equity in it
When Does the HECM Have to Be Repaid?
The reverse mortgage loan can be called due in a variety of situations, such as when the borrower:
- sells the house
- permanently departs (for example, to a nursing home for more than 12 months)
- fails to meet mortgage responsibilities (such as paying taxes and insurance) or dies
- Historically, reverse mortgage lenders have been fast to call loans due and then foreclose.