Homeowner Equity Lending Program

Misconceptions about Home Equity Conversion Mortgage Loans

There are numerous misconceptions about how HECM Loans work. Here are some myths vs. realities.

Myth No. 1: Your lender owns the home

You will retain title and ownership during the life of the loan, and you can sell your home at any time. The loan will not become due as long as you continue to meet obligations such as living in the home, maintain the home according to the Federal Housing Administration requirements, and paying property taxes and homeowners insurance.

Myth No. 2: The home must be free and clear of any existing mortgages

Actually, many borrowers use a HECM to pay off an existing mortgage and eliminate monthly mortgage payments.

Myth No. 3: Once loan proceeds are received, you pay taxes on them

HECM loan proceeds are tax-free, as it is not considered income. However, it is recommended that you consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.

Myth No. 4: The homeowner is restricted on how to use the loan proceeds

The cash proceeds from a HECM can be used for any reason. Many borrowers use it to supplement their retirement income, delay receiving social security benefits, pay off debt, pay for medical expenses, remodel their home or help their adult children.

Myth No. 5: Only poor people need reverse mortgages

The perception of the HECM as assistance or the “poor” borrower is changing — many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using HECM loans as part of their financial and estate planning, and are working closely with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.