Pros And Cons Of Home Equity Conversion Mortgage

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The Pros and Cons Of Home Equity Conversion Mortgage

This Blog On The Pros And Cons Of Home Equity Conversion Mortgage Was Written By Mike Gracz

There are pros and cons of home equity conversion mortgage.

  • A government-insured Home Equity Conversion Mortgage (HECM) offered the Federal Housing Administration (FHA) is one type of mortgage loan program commonly referred to as a reverse mortgage
  • These loans are available to qualified individuals who are 62-years-old or older and have no monthly payments for as long as the borrower lives in the home

Difference Between Traditional FHA Mortgage Versus HECM Reverse Mortgage

What is the pros and cons of Home Equity Conversion Mortgage?

What Is The Difference Between Traditional FHA Mortgage vs. HECM Reverse Mortgages?

  • Michael Gracz the national consumer direct manager and in charge of Gustan Cho Associates explains as follows:
    • with a traditional FHA mortgage, an individual borrows a lump sum of money for the purchase or refinance of a home
    • then makes monthly payments to repay the loan
  • With a reverse mortgage, an individual accesses the equity they have in their home
  • Homeowners equity turns it into cash, monthly payments, a line of credit, or a combination of these without having to repay the loan while living in the home

Both types of mortgages require borrower pay property taxes and homeowner’s insurance maintain the home and comply with all terms of the loan.

Benefits Of HECM Reverse Mortgages

Michael Gracz of Gustan Cho Associates explains the pros and cons of Home Equity Conversion Mortgage, also known as HECM.

So what are the benefits of an HECM Reverse Mortgage? 

  • A reverse mortgage can enhance a borrower’s quality of life
  • This is done by enabling them to continue to reside in a home that has emotional value in a familiar environment
  • Instead of making monthly payments to a lender, borrowers receive money from their lender… tax-free!  (Individuals should consult their financial advisor and appropriate government agency for any effect on taxes and/or government benefits)
  •  In addition, heirs inherit any remaining equity after the reverse mortgage is paid in full.
  • Finally, no individual is responsible for repayment of the remaining balance if the home is worth less than the remaining balance of the reverse mortgage when the mortgage becomes due

Cons Of HECM

What are the pros and cons of Home Equity Conversion Mortgage? Michael Gracz now explains the cons.

What are drawbacks of an HECM Reverse Mortgage is asked by not just borrowers of Mike Gracz, but it is a question that is asked my many real estate and mortgage professionals. 

  • The fees and costs, including FHA initial and annual mortgage insurance premiums
  • May be higher than traditional mortgage fees and costs
  • The amount of any equity in the home may decrease over time
  • This is since the loan balance increases over the life of the loan as interest accrues
  • The lender may make additional cash advance payment
  • This is depending on the disbursement options chosen
  • Social Security and Medicare eligibility are not affected by a reverse mortgage
  • However, needs-based government programs, such as Medicaid, can be affected

The Mechanics Of Reverse Mortgages

Loan Disbursement Options 

Reverse Mortgage Borrowers have a choice of how they will receive their loan disbursements.

  1. A lump sum payout (can be used to consolidate large expenses and other debts)
  2. Monthly payments (can be used to supplement retirement income)
  3. A HECM growing line of credit (can be used to access funds when needed)

How Do I Qualify For A Reverse Mortgage?

Requirements of an HECM Reverse Mortgage. 

Following is a summary of the key requirements for reverse mortgages:

  1. All borrowers on title must be aged 62 years or over
  2. The home is a principal residence and has sufficient equity
  3. All borrowers must meet FHA’s financial eligibility criteria
  4. The home must meet FHA’s minimum property standards
  5. All borrowers must complete a counseling session with a HUD-approved reverse mortgage counselor

The Reverse Mortgage Process

The HECM Reverse Mortgage Application Process. 

Mike Gracz of Gustan Cho Associates addresses that the Reverse Mortgage application process is similar to the traditional mortgage loan process and will typically take up to 60 days to complete. 

The six major steps are:

  1. Research and choose a lender
  2. Submit a mortgage application
  3. Complete reverse mortgage counseling
  4. Establish property’s value with an appraisal
  5. Underwriting review of all documentation
  6. Sign final closing documents

About The Author Of The Pros And Cons Of Home Equity Conversion Mortgage

Michael Gracz is contributing associate editor and writer for Gustan Cho Associates and its affiliates and partners.

  • Retirement is a significant life event and not all seniors have adequately prepared
  • Michael Gracz of Gustan Cho Associates is a Reverse Mortgage expert
  • Michael Gracz goal is to educate seniors about the pros and cons of Home Equity Conversion Mortgage
  • Michael educates his audience via mortgage and real estate informational resource national media outlets like Gustan Cho Associates Mortgage & Real Estate Information Resource Center 
  • Other ways Mike Gracz reaches his audience and fans are through the following:
    • Local seminars
    • National radio and cable networks
    • Lending Network Online Communities

Besides being one of the most knowledgeable Reverse Mortgage Loan Officers in national lending network. Michael Gracz is an expert in originating and funding FHA, VA, USDA, Conventional, FHA 203k, Jumbo, and portfolio loans. Please contact Gustan Cho Associates at 262-716-8151 or text for faster response. Borrowers can email us at gcho@gustancho.com. The Team at Gustan Cho Associates s available 7 days a week, evenings, weekends, and holidays.  Gustan Cho Associates, the national consumer direct division of Loan Cabin Inc. NMLS 1657322 is licensed in multiple states. Gustan Cho Associates at Loan Cabin Inc. has a national reputation for closing loans in 21 days and not having overlays. 

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