Have you ever thought to yourself, “I wish my monthly mortgage payment was lower?” Or maybe you even wished that you could simply skip next month’s mortgage payment? Or maybe you wished you could stop making any more mortgage payments all together! Or just maybe, you have some extra money laying around and want to make a larger payment one month. Well guess what, you can do all of this with a Home Equity Conversion Mortgage (HECM).
The HECM is the best type of loan for payment flexibility and optionality. Many people believe that when you get a reverse mortgage you simply do not make any mortgage payments but that is only one way that you can utilize a reverse mortgage. A Home Equity Conversion Mortgage (HECM) provides you ultimate flexibility so you can choose how much you want to pay each month and manage your monthly expenses. I call it the pick a payment loan because you can make an interest only payment each month, you can make a payment of principal and interest each month, you can pay less than the interest, or you can ultimately not make any payment at all. (When you make payments, the funds are first applied to any outstanding mortgage insurance, then mortgage interest, then principal).
As we age, life becomes more unpredictable, and we incur additional unplanned expenses due to home maintenance/ improvement or medical or dental expenses which can all cause a strain on our monthly expenses and our overall finances. Therefore, having a mortgage with flexible payment options is one of the best ways to manage your monthly expenses as you enter retirement.
Losing a spouse can also create one of the largest impacts to your finances due to the fact that your household income is typically reduced by around 40-50%. Unfortunately, when you have a traditional mortgage (like a 15-year or a 30-year fixed rate mortgage), your lender does not reduce your monthly mortgage payment by 40-50% when you lose a spouse. Therefore, a 15-year or 30-year fixed rate mortgage can ultimately become a financial burden when you lose a spouse, even if you have an interest rate around 3 or 4%. Therefore, a HECM can be a perfect financial solution that allows you to make larger monthly payments when you have the additional cash available but also allows you to make a lesser payment (or no payment at all) when you incur a strain on your finances or a loss of income. As a reminder, you are always required to pay property taxes, homeowner’s insurance and maintain your home (and HOA dues if applicable) when you have a HECM.
Lastly, you might not realize how many homeowners have gotten a HECM and are realizing the real value of these amazing financial tools. Based on New View data sources, it is estimated that there will be around $4.8 Billion in new reverse mortgages that will close in 2023. To give you a historical perspective, this is around 21% more than 2019. Additionally, these sources estimate there will be around $7 Billion of reverse mortgages funded in 2025 and this number is likely to grow to over $20 Billion per year by 2030.
If you are curious to know how many people have a HECM in your neighborhood or your community, you can type in your zip code to the widget in the lower right hand corner on my website and you can see how many homeowners have a HECM within 10 mile radius of you.
