Monthly Advances Only, HECM Repayment ,Debt Limit, HECM Costs

Monthly Advances Only

Table 2 also shows that you get the largest possible monthly advance if you do not take a lump sum or a credit line. But putting all of your loan funds into a monthly advance reduces your financial flexibility, especially if you have little in savings. Remember, monthly advances are

fixed, so their purchasing power decreases with inflation. Adding a growing credit line to a monthly advance not only gives you a hedge against rising prices. It also provides readily available cash for unexpected expenses. So if you are interested in a monthly advance, it’s a good idea to consider adding a credit line as well.

On the other hand, for a $20 fee, you could change your payment plan at any time. For example, you could add a credit line to a monthly advance, although this would reduce the amount of the

monthly advance. You could also convert part or all of a credit line into a monthly advance.

HECM Repayment

As with most reverse mortgages, you must repay a HECM loan in full when the last surviving borrower dies or sells the home. It also may become due and payable if:

• you allow the property to deteriorate, except for reasonable wear and tear, and you fail to correct the problem; or

• all borrowers permanently move to a new principal residence; or

• due to physical or mental illness, the last surviving borrower fails to live in the home for 12 months in a row; or

• you fail to pay property taxes or hazard insurance, or violate any other borrower

obligation.

Debt Limit

If your rising HECM loan balance ever grows to equal the value of your home, then your total debt is limited by the value of your home if the home is sold to repay the loan. But if the home is not sold and the loan is repaid with other funds, then you or your estate would owe the full

loan balance—even if it is greater than your home’s value. Your heirs would not have any personal liability for repaying the loan.

HECM Costs

Almost all the costs of a HECM can be “financed,” that is, they can be paid from the proceeds of the loan. Financing the costs reduces the net loan amount available to you, but it also reduces your cash, out-of-pocket cost. The itemized costs of a HECM loan include an origination

fee, third-party closing costs, a mortgage insurance premium, a servicing fee, and interest.