Types of Reverse Mortgage Loans

HECM (Home Equity Conversion Mortgage), Financial Freedom Cash Account and Homekeeper by Fannie Mae are the three most popular reverse mortgage loans offered today. However, new products are being introduced as Reverse Mortgage demand increases. It is advisable to make comparisons between various options when receiving a reverse mortgage loans quote.

1. Home Equity Conversion Mortgage (HECM)

HECM loans generally provide the largest loan advances of any of the reverse mortgage loans. The HECM loan also gives you the most choices of how you would like to receive your loan proceeds. Home Equity Coversion Mortgages account for 90% of all reverse mortgage loans originated in the United States.

The HECM loan is the only reverse mortgage insured by the federal government. They are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA insurance program is what guarantees that the lenders will meet their obligations to you for your loan payments.

HECM loans require borrowers to complete third party counseling, usually done by non-profit organizations, such as AARP before an application can be processed.  AARP in conjunction with HUD has implemented a counselor training program.  As a result the counselors that are AARP certified are some of the best in the industry and are trained to use AARP software that compares total loan costs and gives a true apples to apples comparison between various loan options available to applicants. AARP certified counselors can be contacted through the AARP network by calling their toll free number, 800-209-8085.  The counseling is free of charge and can be done by telephone or in person at one of their offices.

The money you receive from a HECM loan can be used for any purpose. HECM loans are available in all 50 states, the District of Columbia, and Puerto Rico. The maximum loan amount on HECM loans varies by the county where your property is located. Borrowers must be at least 62 years or older to be eligible for the HECM reverse mortgage.

With the HECM loan, if you choose a line of credit as one of your loan proceed choices, the unused portion of your credit line will earn interest and will actually grow overtime, allowing your available funds to increase. The rate you will earn on your line of credit is equal to your loan's effective interest rate. Reverse Mortgage Interest Rates Explained

HECM Loan Fees are standardized and capped by HUD to help protect seniors from being overcharged for services.

2. HomeKeeper by Fannie Mae

Fannie Mae (FNMA) maintains the HomeKeeper program, which is a proprietary mortgage product designed to benefit the financial needs of seniors 62 years or older. It is available throughout the United States. Like the HECM loan the FNMA HomeKeeper also requires the senior to attend counseling by an approved third party agency. The maximum loan amount nationwide for the HomeKeeper loan is $417,000.

The loan proceeds from the HomeKeeper reverse mortgage are non-taxable and can be used for any purpose. You or your heirs can never owe more than the value of your home at the time the loan is repaid.

The Fannie Mae HomeKeeper reverse mortgage does not allow for any growth rate on the line of credit option. There is also no mortgage insurance premium charge on the HomeKeeper loan.

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3. Financial Freedom Cash Account

The Financial Freedom Cash Account is primarily designed for higher value homes. There is no maximum loan limit or home value on this reverse mortgage loans product. The borrower(s) must be 62 years or older to access the Cash Account reverse mortgage. The Cash Account reverse mortgage follows the same guidelines as the HECM and the HomeKeeper loans as far as third party counseling is concerned. The minimum home value is $75,000. The Cash Account is not available in all states. (Please check with our loan counselors to see if your home state is eligible.)

You may receive your tax free Cash Account proceeds in the following ways:

• The Standard Option - Cash Account, which is an open ended revolving line of credit. The unused portion of the line of credit has an annual growth rate of 5%. And the minimum draw from your line of credit is $500.00
   
• The Zero Point Option - Cash Account, which is a lump sum payment to you. You are required to draw 75% of the available funds from your credit line at closing. The unused portion of the credit line has an annual growth rate of 5%. The minimum draw from your line of credit in the future is $500.00. This loan does not charge an origination fee.
   
• Simply Zero Option - Cash Account, which is also a lump sum option. You are required to draw 100% of your available funds at closing. This loan has zero closing costs (excluding state and local, if any).