An Overview of HECM Mortgages and Why You Need to Know About Them

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Tane Cabe is here with us to talk about one of the most exciting mortgage options out there for homeowners. It’s called the HECM, or Home Equity Conversion Mortgage. Most people aren’t even aware it exists, but after today you’ll be glad you heard about it.

HECM’s are an interesting animal, because they are totally different from a conventional mortgage. To use one, you must be at least 62 years old, and have the money for both the down payment and closing costs. I recently had a pair of clients who were 75 and 80 qualify for one of these mortgages. They were living in a beautiful house, but it was getting too big for them. We sold that home for $620,000 and after paying off their mortgage, they still had about $500,000 in equity left. They didn’t have a lot of income, just social security,  but we were able to get them a HECM on a home worth $450,000 with just a $260,000 down payment, allowing them to retain the rest of their money for other things.

A HECM mortgage has no mortgage payments, ever. It gives buyers cash out of their previous home, increases their income, and they can never be kicked out of the home as long as they are keeping up on insurance and tax payments.

Another way an HECM can be used effectively is if you are interested in investing in property. For example, you can buy a four-plex for approximately half of its market value, and rent out three of the units to generate an average of $2,225 a month, without having to pay a mortgage whatsoever. It’s a powerful tool. 

Finally, you can use an HECM mortgage as a “warm gift.” If you decide to give your home to your children or grandchildren when you pass away, that’s great. The HECM can be used to sell that house and buy another one, while pulling the equity out and being able to give that to your family for a down payment on a home. 

The birth of the HECM was way back in 2008, where it was buried deep in the economic stimulus package. The goal of this program was to get more seniors to buy homes and give them a good opportunity to downsize from their current home that they may have raised their family in. 

Why have a huge house and a big mortgage payment when you don’t need either? If you don’t want to have a mortgage payment, the only other way to do it besides having a HECM is paying in cash. With a HECM, you can put 50% down or less on a home, and all you’ll have to pay are taxes and insurance. The home will also be federally insured. 

Tane wrote a great book called “Double Your Retirement Dollars” and he goes into great detail about this program, as well as some others. If you’d like a free copy, just head on over to nopaymentbook.com/steve and enter your info on the page. Tane will send you a copy, and you’ll be able to look at tall the great information in there.