Taking out a Home Equity Conversion Mortgage (HECM) is a big decision to make. And, many people have asked how safe is this government-insured loan program? Although reverse mortgages aren’t right for everyone, the HECM program has many built-in protections to keep borrowers safe.
The following are safeguards that cover the reverse mortgage you should know – to keep your mind at peace.
The Loan is Federal Guaranteed
The fact that the reverse mortgage is federally guaranteed is one of the most prominent protection that covers this loan option. The reverse mortgage is insured by the Federal Housing Administration (FHA).
Depending on the loan program you choose, when you take out a reverse mortgage, as a borrower, you will need to pay an upfront mortgage premium. Also, you will need to finance an annual mortgage insurance premium of 50% of the mortgage balance.
The Reverse Mortgage Offers a Non-recourse Feature
Here is another borrower protection to put your mind at ease. The non-recourse feature means that even if your reverse mortgage ends up exceeding the value of your home, you won’t have to repay more than what your home is worth at the time decide to sell your home.
It also extends to your heirs as well. In the case of an unfortunate event, and you pass away, your heirs won’t have to pay more than the home’s value should they decide to sell.
Everyone who qualifies for the HECM loan will be required to go through a Department of Housing and Urban Development-approved counseling agency. The counseling is aimed at making sure that you understand how the loan works and how it applies to your unique situation.
Counseling is also a time you can ask any question that you might have. After the counselors have assessed your knowledge of this loan, they will issue a certificate that enables you to continue with the loan application.
The Ban on Cross-selling
Under the Housing and Economic Recovery Act of 2008, reverse mortgage originators are banned from cross-selling some financial products. What this means is that they cannot originate a reverse mortgage and then ask you to buy an insurance investment or any other financial product with them.
These rules are there to protect you (the borrower) from unethical lenders who may want to compel you to purchase a financial product you don’t want or need.