Reverse Mortgage: Home Equity Conversion Mortgage

The Home Equity Conversion Mortgage (HECM) is the oldest and most popular reverse mortgage product, accounting for an estimated 90 percent of the total market. Available since 1989, HECMs are insured by the federal government through the Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development.

The amount of available proceeds you can qualify for under the HECM program depends on your age, appraised home value, and current interest rates. The older you are the more funds you qualify for.
The amount of money you are eligible to receive will be calculated by the appraised value up to the California FHA Lending limit of $417,000. Practically speaking, if your home is worth $800,000, but the lending limit is $417,000 then the loan amount will be based on $417,000. Conversely, if your home is worth $200,000, and the lending limit is $417,000. your loan will be based on the lower amount.

Many of the upfront fees associated with the HECM are capped by FHA. Currently, you pay a mortgage insurance premium (MIP) equal to 2 percent of the maximum claim amount (the value of the home or FHA lending limit, whichever is less), plus an annual premium thereafter equal to 0.5 percent of the loan balance. The MIP is paid directly to FHA in exchange for guaranteeing the loan. The MIP guarantees that if the company managing your account - commonly called the loan "servicer" - goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid.

In addition to the mortgage insurance, you will also pay other standard closing costs associated with getting a mortgage, including: origination fee, title insurance, escrow fees, recording taxes, etc.