What protections does a HECM come with?

Counseling: You must be counseled by an independent financial counselor about the risks and benefits of taking a HECM before a lender can start to process your application. Like any financial product, if a HECM is not suitable for your circumstance, the result may be a great deal of stress and unhappiness. Very few products come with a counseling or educational requirement, but a HECM does.
Right of Rescission: Provided you are not using the HECM to purchase a home, you have 3 days to re-evaluate your decision, and may if you wish cancel the entire transaction.
No Monthly Repayment Option: You don’t have to make monthly payments (though you must always pay the taxes, insurance and property maintenance), so your credit cannot be impacted by not making a mortgage payment. However when you leave the home, or have another form of Maturity Event, you will have to repay the loan to the lender. Most borrowers or their estates, pay off the HECM through the sale of the home or, if no equity remaining in the home, give it back to the lender as full payment of the HECM.
Partial Payments:If you partially repay any of a variable rateopen-ended HECM those repayments (not just of principal as in the case of a HELOC, but repayments or draws, interest and mortgage insurance) will increase the existing line of credit available to you.
Own the Home: You own the home. It was not sold to the bank or the lender or the government. It’s your home.
Age-in-Place: You can live in the home for as long as you want or are able.
Non-Recourse Loan: If there is a loss on payoff, you (or your estate) can simply walk away.
Retain Equity: If there is equity in the property, it’s still yours or your estate’s.
Spousal Protection: If a spouse is on the title they are equally protected.
Possible Tax Deductions: If you make payments you potential get the same tax deductions on interest and mortgage insurance you would have gotten with a regular or forward mortgage. (Always check with your tax advisor).
Guaranteed Availability: Unlike a typical home equity (HELOC) loan, your line of credit can never be revoked and is guaranteed by the government (not a bank or an annuity company).
Unused Line of Credit can Grow: Amazingly and most uniquely, the unused or available line of credit on a Variable Rate HECM actually grows annually (at the rate of the sum of the mortgage rate and the annual mortgage insurance rate).Why? Because if you didn’t use the line of credit on the HECM, the lender can release the interest and mortgage insurance they had set aside for that anticipated usage back into your line of credit. To exaggerate; if you never used your HECM and never drew down any money over the course of your remaining life, it’s possible that the available line of credit would eventually exceed the original value of your home because the interest and mortgage insurance reserve is released if not used.
Non-Borrowing Spouse: In the event, a spouse is not on title, but qualifies under the FHA rules, that spouse may apply for a deferral of the Due and Payable and continue to occupy the house under the same conditions. However, they may not access any unused HECM line of credit.
Non-payment of Property Tax Assistance: The house can be foreclosed upon should the borrower(s) not pay the property insurance and tax. However, under FHA rules, the servicer must advance the monies to the borrower(s) to facilitate payment, and offer the borrowers up to 24 months’ in a payment plan to repay the overdue amounts. The FHA must give permission for a lender to foreclose if nonpayment of property charges, protecting the borrower against potential unfair lender practices.
Tax-Free Proceeds: The money paid out is a loan. Therefore, it is tax- free (But always check with your tax advisor in the event the tax laws have changed).
Family Purchase of Home at 95% of Appraised Value: In the circumstances that the home has no remaining equity, but the family wishes to purchase the home, they may do so at 95% of its then appraised value.

HECMs are complicated, and borrowers should be well educated on how to use them and what responsibilities they have once they get one. But they are a very creative product if used thoughtfully, and they do solve particular financial problems that face older borrowers.

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