HECM Benefits, Loan Amounts, Lump Sums & Creditlines

HECM Benefits

The HECM program provides the widest array of cash advance choices. You can take your entire loan as a:

• single lump sum of cash; or

• “creditline” account of a specific dollar amount that you control, that is, you decide when to make a cash withdrawal from this account, and how much cash to withdraw; or as a

• monthly cash advance for a specific period of time, or for as long as you live in your home.

In addition, you can choose any combination of these options, and change your cash advance choices at any future time.

Loan Amounts

The amount of cash you can get depends on your age, current interest rates, and your home’s value. The older you are, the more cash you can get. If there is more than one owner, the age of the youngest is the one that counts. The lower the interest rate, the greater your loan amount will be.

 In general, the greater your home’s appraised value, the more money you can get. However, the value is subject to a limit of $417,000 in November of 2008, and this limit is subject to change every January. If your home is worth more than $417,000, you are still eligible for an HECM loan, but the amount of money you can get is based on $417,000, not on your home’s actual value. For example, if your home is valued at $500,000, then the amount you can borrow is the same as it would be if your home were valued at $417,000. (The $417,000 limit does not apply to parts of Hawaii, which have higher limits. But it does apply to the other 49 states plus the

District of Columbia and Puerto Rico.)

Lump Sums & Creditlines

Table 1 shows how much you could get from a HECM if you take it all as a single lump sum of cash or as a creditline, if: • the value of your home is $150,000, $250,000, or $350,000;

• the expected interest rate on the loan is 6%, 7%, or 8%;

• the age of the youngest borrower at closing is 65, 70, 75, 80, 85, or 90; and

• the servicing fee is $35, closing costs are $2,500, and the origination fee is the maximum allowed by HUD

(see p. 13).

You can divide the amounts in Table 1 between a lump sum and a creditline. For example, a 75-year-old borrower living in a $250,000 home getting a HECM loan at 7% expected interest could select:

• a lump sum or creditline of $135,484; or

• any combination of lump sum and creditline that totals $135,484, for example, a lump sum of $30,000 and acreditline of $105,484.

For an estimate of HECM cash benefits based on your age, home value, and current interest rates, go to the online calculator at www.aarp.org/revmort (click on “Reverse Mortgage Calculator”).