HECM Saver

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What is HECM Saver?

HECM Saver (Home Equity Conversion Mortgage Saver) was a type of federally-insured reverse mortgage that offered lower upfront costs compared to the traditional HECM Standard reverse mortgage. Introduced in 2010 by the Federal Housing Administration (FHA), the HECM Saver was designed to be a more affordable option for homeowners looking to convert their home equity into cash. However, it’s worth noting that the HECM Saver option was eventually discontinued and merged into a single HECM product. Still, understanding its features can be helpful in understanding the evolution of reverse mortgage options in the United States.

Key Features

  1. Lower Upfront Costs: One of the primary benefits of the HECM Saver was its lower initial mortgage insurance premium (MIP), making it cheaper to initiate.
  2. Smaller Loan Amounts: The loan amount available was generally smaller compared to a HECM Standard, as the HECM Saver offered lower borrowing limits.
  3. No Required Monthly Payments: Like other reverse mortgages, there were no required monthly mortgage payments.
  4. Federal Insurance: Being an FHA-insured product, the HECM Saver offered certain protections to borrowers.
  5. Flexible Payout Options: The HECM Saver allowed multiple disbursement options, including lump sum, monthly payments, or a line of credit.

Eligibility Criteria

  1. Age Requirement: Homeowners needed to be at least 62 years of age.
  2. Home Value: The value of the home was an essential factor in determining the loan amount. An appraisal was generally required.
  3. Primary Residence: The property had to be the homeowner’s primary residence.
  4. Financial Assessment: Borrowers needed to undergo a financial assessment to ensure they could meet property tax and insurance obligations.

Pros and Cons

Pros

  1. Lower Initial Costs: Reduced upfront MIP was easier on the pocket.
  2. Flexible Options: Multiple disbursement options provided financial flexibility.
  3. Government Protection: Federal insurance offered an added layer of security.

Cons

  1. Lower Loan Limits: You couldn’t borrow as much as with a traditional HECM.
  2. Ongoing Costs: There were still ongoing costs, like insurance premiums and interest rates, that could accumulate over time.

Is It Right For You?

The HECM Saver was a good fit for those who were looking for lower initial costs and didn’t require as large a loan amount. If you were only looking to tap into a smaller portion of your home equity for immediate needs, it could have been an attractive option. Although the HECM Saver is no longer available as a separate option, understanding its unique features and benefits can offer valuable insights into reverse mortgage products that may be available today or in the future. Always consult with financial professionals before making significant financial decisions, such as taking out a reverse mortgage.

FAQ

HECM Saver was a type of reverse mortgage insured by the FHA. It allowed homeowners aged 62 and older to convert a portion of their home equity into loan proceeds, which could be received as a lump sum, monthly payments, or a line of credit.

HECM Saver had lower upfront mortgage insurance premiums (MIP) compared to the standard HECM. However, it also provided access to a smaller percentage of the home’s value.

Homeowners aged 62 and older who lived in their home as their primary residence, had sufficient income or assets to cover their living expenses, and attended a HUD-approved counseling session were eligible.

Eligible properties included single-family homes, 2-4 unit homes with one unit occupied by the borrower, HUD-approved condominiums, and manufactured homes that met FHA standards.

The amount varied based on the borrower’s age, the appraised value of the home, current interest rates, and the HECM product chosen. Generally, HECM Saver provided access to a smaller portion of home equity than the standard HECM.

Borrowers were required to pay an upfront MIP, ongoing MIP, origination fee, and other standard closing costs. The upfront MIP for HECM Saver was lower than that of the standard HECM.

No. HECM Saver, like all HECM products, was a “non-recourse” loan, meaning the borrower (or the borrower’s heirs) would never owe more than the home was worth at the time of repayment.

The loan became due and payable when the borrower moved out of the home, sold the home, passed away, or failed to meet the loan obligations such as paying property taxes and insurance.

If the loan balance was higher than the home’s value at the time of repayment, FHA insurance covered the difference, and the borrower or their heirs did not owe the excess amount.

The HECM Saver was discontinued in 2013 due to low demand and the FHA’s efforts to streamline the reverse mortgage program and strengthen consumer protections.

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