In the first seven months of 2020, HECM endorsements reached an 11-year high. This indicates that the product is becoming increasingly popular among senior homeowners, who are using it to supplement their retirement funds and access home equity.
The reverse mortgage program allows senior homeowners aged 62 years and older to access the equity in their homes in the form of monthly payments, a lump sum, or line of credit. The HECM functions as a loan, with the borrower’s home being used as security. The loan does not have to be repaid until the last surviving borrower dies, sells their home, or moves out for more than 12 consecutive months.
The unprecedented growth of the HECM program can be attributed to a number of factors. Low interest rates in recent years have made the program more attractive to potential borrowers. Coupled with this, there has been an increase in the lifespan of senior citizens, meaning they are able to take advantage of the program for longer periods of time. It has also been suggested that the program has become more accessible due to advances in the internet and digital technology.
The nature of the HECM program means that it can provide a significantly higher return on investment than traditional savings vehicles. This is especially true for retirees who are living on a fixed income. It has allowed them to access a larger portion of their home equity, allowing them to supplement their incomes and maintain their quality of life.
However, there are some drawbacks to the HECM program. It has the potential to put seniors at risk of foreclosure if they are unable to pay their property taxes and insurance costs. It is also important to note that the fees associated with the program are usually quite high, and these costs can eat into the borrower’s equity.
Despite these risks, the HECM program continues to be an attractive option for senior homeowners. With the endorsement rate reaching an 11-year high, it is clear that this trend is likely to continue in the near future. The HECM program has provided retirees with a viable way to supplement their retirement income and access their home equity, and this is likely to remain a popular option in the years to come.
The Home Equity Conversion Mortgage (HECM) program, sponsored by the Federal Housing Administration (FHA), has seen a significant spike in endorsements over the past few years. From January through July of 2020, HECM endorsements reached an 11 year high. This indicates that seniors, looking to access their accumulated home equity, are increasingly turning to this reverse mortgage program as a viable option.
The program itself allows seniors, ages 62 and over, to access the equity in their homes in the form of monthly payments, a lump sum, or line of credit. The loan does not have to be repaid until the last surviving borrower sells, dies, or moves out for more than 12 consecutive months. This makes it an attractive option for retirees, as they are able to access a larger portion of their home equity, aiding in supplanting their retirement funds.
There are a few factors which may be contributing to the increased popularity of the program. Low interest rates in recent years have made it a more viable option for potential borrowers. Advances in internet and digital technology have also made it more accessible. Lastly, the increased life expectancy of seniors has allowed for an increased amount of time to make use of the program.
While the HECM program can provide a significant return on investment, it is not without its risks. The accompanying fees have the potential to eat away at the borrower’s equity, leaving them with less capital than anticipated. Furthermore, failure to keep up with property taxes and insurance can result in foreclosure.
Despite the drawbacks, the HECM program has continued to be an attractive option for seniors, with the endorsement rate reaching an 11 year high. It provides a viable way to supplement retirement funds and access home equity, and is likely to remain a popular choice going forward.
This article was contributed on Oct 10, 2023
