5 factors that help determine the size of a reverse mortgage loan

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A home equity conversion mortgage, or HECM, commonly called a reverse mortgage loan, can prove to be a windfall for seniors who have equity in their home.

With this type of mortgage, borrowers can extract equity, spend the money almost any way they want, never make a mortgage payment and continue to live in their home.

What the heck is a HECM?

A home equity conversion mortgage, or HECM, is FHA’s reverse mortgage loan program, enabling seniors to withdraw some of the equity in their home if they need money. These loans come with fees, including an origination fee that ranges from $2,500 to $6,000. The National Council on Aging’s booklet, called Use your home to stay at home,” offers more details.

The loan need not be paid back until the borrower sells the home, moves out for 12 months or longer, or dies, at which time the principal, fees, interest and mortgage insurance become due.

Heirs receive the right to buy the home for 95 percent of its appraised value.

So, how much money can you get with this type of mortgage?

The answer depends on multiple factors and is subject to various rules, limitations and guidelines, some of which have changed in recent years to limit how much equity homeowners can extract and spend.

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