Reverse Mortgage Types: Home Equity Conversion Mortgages
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A common misconception that people have before they look deeper into the issue of reverse mortgages is that all reverse mortgages are created the same. This is a misconception because you can make the argument that reverse mortgage loans are the most diverse within the home loan market. While the terms of normal mortgages, refinances and home equity loans tend to be quite similar from loan to loan, this is not always going to be the case for reverse mortgages. The main point of similarity that ties reverse mortgages together is the manner in which they are repaid, but aside from that, there are many differences that are described by three main types of reverse mortgages.

Home Equity Conversion Mortgages

The first type as well as the type that people are most likely to have heard of is the loan known as the home equity conversion mortgage. Abbreviated HECM, this type of reverse mortgage loan is famous because it is ensured by a branch of the federal government known as the Department of Housing and Urban Development. In other words, the primary administer of a lot of the HECM mortgages has to go through the federal government in order to have an HECM product that they can then try to sell you.

HECM Considerations

Because of the way in which HECM reverse mortgages work, there are some inherent advantages to that system as well as some inherent disadvantages. First and foremost, there is government regulation. A lot of home loans are not directly regulated by the federal government, but HECM loans are one of the exceptions to that rule. Some customers rest easier knowing that the government is involved in their loan and of course some customers don’t like it at all. Depending on who you are (or who your parents are), you will have to make the determination as to whether this consideration ends up being advantageous or disadvantageous to you.

In addition to that, there is not much variation amongst reverse mortgages that fit into the HECM category; once again because of federal government influence. When you think about the things administered by the federal government, the conclusion reached is that a lot of them are more restrictive than their proprietary counterparts and a reverse mortgage is exactly the same. Therefore, it is a lot easier to shop around and compare HECM products, simply because they are so similar across many different providers. HECM products, because they are federally insured, are also provided in all of the states; something that is not always true for a specific type of loan.

Finally, one last thing to consider when it comes to an HECM product is that a lot of them offer larger reverse mortgage amounts for homes that are of lower value. In other words, a person that owns a home that is not relatively worth a lot of money (say in the low six-figure range) is likely going to be able to get the most out of their home in terms of actual cash by utilizing an HECM product.

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