Dollars and Sense

The Paseo Financial Group: is the HECM refinance mortgage controversial? It shouldn’t be

Melanie Sedam

The implication is that there is something amiss or wrong with the HECM program. There is absolutely nothing wrong with HECM mortgages. In fact, they are the most heavily regulated mortgages in the country, they require HUD counseling even before an application can be submitted. There’s not another mortgage anywhere that can do what the HECM can do as safely as the HECM does it.

One of the things that makes HECM mortgages unique is that the borrowers never have to make monthly or annual payments on the loan. Of course, borrowers can choose to make a payment anytime they want to, but they never have to make a mortgage payment…ever. When the homeowners die the home is left to the heirs and those heirs can either refinance the HECM or sell the home and keep the equity, but either way that’s when the HECM is repaid. Think about that for a moment. If you switched your current mortgage to a HECM, you could decide if and when you make whatever payments you choose, but you never have to make a payment on your HECM. Any mortgage interest is repaid after the borrower moves or dies, assuming no payments are made. If the loan amount is $100,000 and the interest rate was 5%, then at the end of the year your balance would have increased to $105,000. You can choose to either pay the interest or you can let it accrue and not pay it until you sell the home or die.

Let’s say you have a mortgage payment of $2,000 a month and you switch it to a HECM.

You wouldn’t have to make that monthly payment anymore, so you could put an additional $24,000 a year into your own bank account instead of paying what is likely to be mostly interest to your bank. Over five years, that could mean having an additional $150,000 in your proverbial nest egg. In addition, the funds you get from a HECM are tax-free. HECM also offers a simple line of credit program that is guaranteed to increase every year and that you can tap whenever you need to as well. The property must be your primary residence, although it will cover up to a four-plex, and you’re still responsible for paying your property taxes and insurance.

Many people think that using a reverse mortgage means that the bank will own their home but it’s simply not true. Just like when you have any other kind of mortgage, you own the home, not the bank. Retirement today is measured in decades, not years, and no one can know what will happen over decades. The HECM may be the most powerful tool you’re not using to make your retirement years more secure. Today, there are over 10 million homeowners over age 65 that still have mortgages and no one can retire with a mortgage payment. As long as you’re working, maybe you can still make the payment, but if anything changes, it can quickly become a real problem. A HECM can protect you from having to sell your home before you want to because it can provide you with a cushion of tax-free money that you don’t have to repay until you sell your home or die. Stay tuned for more on the subject because this is too important a subject to ignore.

Melanie Sedam is the Owner of, a Reverse Mortgage Company that services the mortgage needs of 55+ communities in Arizona. Please refer to the advertisement is this newspaper for her contact information.