I will say officially (to be compliant) there are four categories of HECM's and the formal thing is to touch on them all slightly but they are not likely to all apply so I will not spend much time of those.
Proprietary / Single Use / Fixed / ARM.
If you are my client now you know I am not able to explain some complicated in a simply way. Because nothing that is complicated that you should know about is simply or easy to understand, so I am going to get into some detail on those that may apply or to help you understand the big picture.
I will start by expanding on what I call the multiple configuration opportunities involving what I call the rate/fee blend options as there are with any refinance.
First, again, HECM is the acronym for a "Home Equity Conversion Mortgage". It reminds me of the acronym, HELOC, for a "Home Equity Line of Credit", which you may have had before and has a mortgage payment which must be paid, which normally is "interest only" for the first ten years. Of course Reverse mortgages do not have payments. I have many clients in the past take out what I called, "Standby HELOC's" these clients saw the value of the HELOC program but did not have a current need to draw funds but recognized the products value as a financial tool. They were proactively prepared to draw on the money, way in advance incase they ever needed to have it, when the time came, it would be there, by sometimes applying and closing 1-3 years in advance. Remember HELOC's are always ARM's. (Adjustable Rate Mortgages).
So guess what, yes you guessed it, (from my point of view) one of these are, what we call:
"Standby HECM's" A Reverse Mortgage HECM (Home Equity Conversion Mortgage), which you close on and it just sits there with no draw, until needed.
If you have studied Reverse Mortgages before then you should first understand some changes in the FHA programs that were a while ago.
Two prior types of Reverse mortgage which we had prior to September 30, 2013 have been eliminated and/or consolidated into one option. These were The Standard and the Saver. September 30, 2013 was a while ago but some borrowers and their advisors read all about those and this has caused confusion.
The next thing to remember is just like normal or regular forward mortgages come in two sub categories of use or purpose, which are those for refinancing and those for purchasing a home. This is the same for Reverse Mortgages, thus:
HECM for Purchase!
So if it is not a HECM for Purchase, then it would be considered a refinance. Ok let us review refinances of normal or regular forward mortgages which also have two sub categories which are "Rate Term" and the other "Cash-out" refinance. The "rate term" just pays off the current mortgage if any, plus settlement costs and the other called a "cash-out refi" puts money in you pocket.
This is similar with Reverse Mortgage, having the first scenario which pays off your current mortgage, settlement costs and other mandatory obligations. The second scenario has the similar "Cash-Out" benefit which does not just have to go in your pocket, with a reverse mortgage, these funds can be distributed monthly akin to an annuity over time or just sit in a "credit line" which by the way, grows each year until you draw it. Then at that time nor in the future will you ever have to make payment as long as the property remains your primary residence.
This Site is Not Tax or Legal Advice. Always consult Legal Counsel and Your Tax Advisor. Content of website are the sole opinions of Robert Fulton & does not necessarily reflect those of Fulton Financial Consultants, Inc.'s Investor/Lenders or insurance companies or other product vendors. Because one of my product lines is that of Reverse Mortgages I must state the following: If the borrower does not meet loan obligations such as taxes and insurance, then the reverse mortgage will have to be repaid." The Terms, benefits and features shared as accurately as possible on best efforts basis and subject to change without notice. Therefore please discuss any decision making specifics with Robert Fulton 360-222-3236. "This material is not from HUD or FHA and has not been approved by HUD or any government agency."