CCCS Housing Counselor Ponciano Allen Answers Your HECM Questions

A reverse mortgage is a special loan that allows you to convert part of the money in your home into cash. Instead of making a payment to the lender, the lender pays you. Home Equity Conversion Mortgages or HECMs are reverse mortgages that are insured by the U.S. Federal government. They are only available through FHA-approved lenders. Although HECMs offer seniors economic security, they can also be costly and complex. That’s why we asked CCCS of Maryland and Delaware reverse mortgage counselor Ponciano Allen to help us examine how they work. Here are 10 questions she is often asked:

1. What are the benefits of taking out a HECM and how do you qualify for this type of loan?

“HECMs provide homeowners who are nearing or in retirement with the financial means to pay off debts, cover monthly living expenses, pay for health care, make home improvements or just have extra cash in their pockets – all without leaving their homes. To qualify for this type of loan, you and all co-owners must be at least 62 years of age. You must have an eligible property and have built up enough equity in it. You must be able to show you have the financial means to continue paying property taxes, homeowners’ insurance, and maintenance once the mortgage is in place. Last but not least, you must obtain reverse mortgage counseling from a HUD-approved nonprofit agency such as CCCS.”

2. What types of homes are eligible for HECM reverse mortgages?

“Single-family homes, one-to-four unit owner-occupied residential properties, and most condominiums are eligible for a reverse mortgage. HUD-approved planned-unit developments and manufactured homes that were constructed after June 15, 1976 and placed on permanent foundations may also qualify.

You may qualify for a reverse mortgage even if you still owe on an existing mortgage. However, the reverse mortgage has to be in first lien position, so if you default obligations owed to the lender will take priority over other claims. You can use proceeds from your reverse mortgage, savings, or assistance from family or friends to pay off an existing mortgage.”

3. How much money can I get from my home?

“That depends. Reverse mortgages do not lend 100% of the value of a home. Instead a loan principal limit is set representing a specific percentage of your home’s equity. The amount of money for which you may qualify is based on the age of the youngest borrower, the interest rate you are charged by the mortgage company, and the appraised value of the property.” Want to know how much mortgage you might qualify for? This calculator will provide an estimate based on your circumstances.

4. How will I receive payments from the mortgage?

“Payment options under a reverse mortgage vary depending on the type of reverse mortgage product you choose. If you choose a fixed rate reverse mortgage your only payment option is one lump sum disbursement at closing. If you choose a variable rate reverse mortgage you can have a credit line, have monthly payments or setup a combination of the two.”

5. What are my responsibilities under a HECM reverse mortgage?

“You are responsible for maintaining the home as your primary residence. At the point you leave your home or no longer properly keep it up, you may be required to pay off your loan balance. You also are responsible for paying the property taxes, homeowners’ insurance, and any home-related association dues.”

6. How does interest work on reverse mortgages?

“There are two types of reverse mortgage products, fixed and adjustable. The fixed rate stays the same while the adjustable or variable rate can fluctuate monthly. Because no monthly mortgage payment is being made towards the reverse mortgage the interest accrues, causing the reverse mortgage balance to grow larger and larger over time, thus using up the equity in the property.”

7. If I take out a reverse mortgage, will I still have an estate left to give to my heirs?

“With a reverse mortgage, heirs to the property have three choices: First, they can sell the home and use the proceeds to pay off the reverse mortgage, then keep any remaining proceeds for themselves. Second, they can pool funds together or obtain their own loan to pay off the reverse mortgage and retain the property. Finally, they don’t have to do anything at all. If the heirs don’t want the property, the mortgage company will simply take it back after about 12 months.”

8. How will taking out a reverse mortgage affect the government assistance I receive?

“The loan proceeds you receive from a reverse mortgage won’t have any impact on your Social Security and Medicare. However, asset-based public programs such as SSI, Medicaid, Food Stamps and Medicare Part D may be affected. This is an important question to raise during your reverse mortgage counseling session.”

9. Down the road, what if I decide I don’t want a reverse mortgage or can’t afford to keep up the taxes, insurance, or maintenance on my home?

“A reverse mortgage is similar to a forward mortgage in that it has a three-day right of recession period. This means that after closing you have three business days to think about your decision and rescind it if you change your mind. After that, you are legally responsible for the contract you have signed.

If conditions change and you aren’t able to keep up property taxes, insurance, or maintenance, this may place you in default. The lender has the right to request you pay any principle that you’ve received and the interest that has accrued. Before this happens, contact your lender. The sooner you do, the more options may be available to you. These may range from a repayment plan and refinancing to putting your home up for sale.”

10. How can I select a reputable reverse mortgage counselor?

“Only HUD certified agencies like CCCS can provide reverse mortgage counseling, but that doesn’t mean counselors always spend enough time evaluating seniors’ situations and helping them understand how HECMs work. Do your homework. Check around until you find an agency that makes you feel comfortable. Not just the one that rushes you in and then out the door.

Ask about their counseling fee. While some people base their decision solely on what a session costs, this should not be the only deciding factor. We allow the fee to be financed into the reverse mortgage. Ask what’s involved in the agency’s counseling process. We pride ourselves on taking the time to help clients explore all the options that are open to them. This is a big decision, and HECMs are a complicated loan product. You want someone who has your best interests at heart, someone who will help you learn what you need to know so you can decide what’s truly best for you.”

Consumer Credit Counseling Service of MD and DE provides reverse mortgage counseling by phone and at its offices in Catonsville and Dover. All of its counselors are trained and certified. To schedule a CCCS reverse mortgage counseling session, call toll-free 1-866-731-8486 or visit the agency website to learn more.

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Consumer Credit Counseling Service of MD & DE, Inc. (CCCS) is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling. CCCS MD State License #14-01 / DE State License #07-01

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