What is a Reverse Mortgage or Home Equity Conversion Mortgage, HECM
A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. The reverse mortgage market is about 1 percent of the size of the traditional mortgage market, with 628,000 outstanding loans, according to industry reports. Most reverse mortgages today are federally insured through the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program, which means they must comply with the related regulations.
The number of reverse mortgage originations is likely to increase in upcoming years with the retirement of the “baby boom” generation, which has more home equity than retirement savings. Studies have estimated that among Americans 55 to 64 years old, 41 percent have no retirement savings account. But a majority of them, about 74 percent, own their homes and have built up good equity. The most common ways for consumers to access this home equity is to refinance their original mortgage, take out a home equity loan or line of credit, sell the home and downsize, or obtain a reverse mortgage.