Baby boomers have taken a hard hit in the recession. They have watched their retirement investments plummet and their housing values go in the same direction. For senior citizens, age 62 or older, that have a free and clear home without a mortgage or one that still has equity in it, the U.S. Department of Housing and Urban Development (HUD) may have a mortgage program to help them use the equity in their home for living expenses or money for other needs.

Home Equity Conversion Mortgage

The Home Equity Conversion Mortgage (HECM) is a program offered by HUD, but you may better recognize it as a reverse mortgage. A reverse mortgage is a special type of mortgage that allows homeowners that are 62 years or older to access the equity they have built up in their home. What makes this different from a traditional mortgage is that the mortgage company pays the homeowner instead of the other way around. The homeowner only has to repay the reverse mortgage if the homeowner sells or no longer occupies the home as their primary residence.

Loan Amounts

There is no specific loan range amount when talking about the HECM program. HUD considers several factors when determining how much money it will lend on the reverse mortgage, such as:

• Whichever of the two figures is lower: The appraised value of the home or the maximum principal amount for a single-family residence that can be insured by FHA in the area
• Age of the youngest borrower
• Mortgage interest rate

Reverse Mortgage Payment Options

State rules and regulations vary, so depending on where you live, you may have different options for obtaining the reverse mortgage or HECM payments. Generally, however, five options exist from which homeowners can choose:

1) Term option: Probably one of the most popular options is the term payment. This allows homeowners to receive fixed monthly payments for a specific period of time, which the homeowner is able to choose.

2) Tenure option: This option also allows you to receive equal monthly payments, but only for the time period in which you live in the home as opposed to the time period you establish with the term option.

3) Line of Credit option: Reverse mortgages also come in the form of a line of credit, similar to a second mortgage that you would put on a home. A line of credit works like a credit card in that you can access the money on the line when and if you need it. Texas it the only state that does not permit this option for the HECM program or reverse mortgages.

4) Modified Tenure Plan: This is a combination plan that permits you to combine a line of credit with equal monthly payments, but only for the time you occupy the home.

5) Modified Term Plan: This plan works the same as the modified tenure plan, except it is for a set period of time instead of how long you occupy the home.

Pros of Home Equity Conversion Mortgage

The primary advantage of a reverse mortgage is it provides the cash seniors need for various costs. Some seniors need the money for:

• Normal living expenses
• Extra medical costs
• Renovating their home to accommodate their aging bodies
• Live out retirement traveling and enjoying life
• Paying off other debt

Cons of Home Equity Conversion Mortgage

As beneficial as the HECM program can be, it also comes along with some disadvantages.

• Prohibits moving options: The HECM program and reverse mortgages, in general, are only applicable when the homeowner occupies the home. If the homeowner sells or rents the home, then the reverse mortgage ends and repayment of the loan must occur. If you pass away, it can also decrease the amount of assets you have to pass on to your heirs.
• Can impact low-income assistance: Since a reverse mortgage pays you income, it can affect other types of income you are eligible for as a retiree or senior citizen. Social Security benefits and Medicare benefits can be affected by the money you receive from a reverse mortgage program.
• Upfront costs: All mortgages have upfront closing costs. Reverse mortgages are no exception to this rule. Some reverse mortgage companies charge higher fees to establish a reverse mortgage than it costs to establish a traditional mortgage.

Home Equity Conversion Mortgages (HECMs) have their pros and cons for seniors, retirees, Baby Boomers and other homeowners over the age of 62. Make sure to weigh the pros and cons before deciding whether it is a program that is a beneficial one for you and your financial circumstances.