The Benefits of Home Equity Conversion Mortgage (HECM) Loans for Home Improvement
If you're a homeowner 62 or older, you might be sitting on a significant amount of untapped home equity – equity you can use to finance essential home updates, repairs or even major renovations.
The Home Equity Conversion Mortgage (HECM) loan, commonly called a reverse mortgage loan, is designed for homeowners like you. Let’s explore the numerous advantages HECMs present for home improvements.
What This Article Covers:
- How Do HECMs Work?
- Benefits of Using a HECM for Home Updates
- Enhancing Property Value
- Increasing Comfort and Accessibility
- Benefits of Using a HECM for Repairs
- Benefits of Using a HECM for Renovations
How Do HECMs Work?
Home Equity Conversion Mortgages (HECMs) are the most popular form of reverse mortgage loan and the only type insured by the Federal Housing Administration (FHA). A HECM converts a portion of a home’s equity into cash. The money is considered loan proceeds (and not income), so it's tax-free.*
Borrowers have great flexibility in how they receive their payments, including lump sum, a line of credit where the unused portion grows over time and more.
HECMs eliminate monthly mortgage payments so long as the borrower lives in the home and covers property expenses such as taxes, insurance and home upkeep. The loan is typically repaid by the home's sale when the last borrower moves, sells the home or passes away.**
HECMs are non-recourse loans, meaning when the loan becomes due and payable, if the home sale is less than the loan amount, the mortgage insurance paid by the borrower – the Mortgage Insurance Premium (MIP) – covers the difference, not the borrower or their heirs.**
For more information, check out our deep-dive article detailing how a HECM works, its pros and cons, eligibility requirements and more.
Benefits of Using a HECM for Home Updates
Revamping your home can be more than just a facelift – it can be a strategic move for long-term comfort and value enhancement. The issue is that it’s difficult for people of retirement age to fund significant home improvements through conventional means. After all, taking out a new forward loan or dipping into retirement savings can add stress to those on or preparing to be on a fixed income.
Here are just some of the things that homeowners 62 and older could do with their HECM proceeds:
If you're curious what you may qualify, you can use our reverse mortgage calculator to start the process.
Enhancing Property Value
Modernizations
Older homes may have a lot of charm but often lack modern conveniences. With the help of a HECM, homeowners can get the latest designs and technologies, creating a blend of classic and contemporary that future buyers will pay a premium for.
Energy Efficiency Upgrades
As global awareness toward sustainability grows, energy-efficient homes are becoming the norm. By investing in energy-efficient appliances, HVAC systems and even sustainable materials, homeowners can reap significant utility savings and increase their home value.
Increasing Comfort and Accessibility
Age-in-Place Designs
No one likes leaving their cherished home due to age-related constraints. With a HECM, homeowners can redesign spaces, making them more accessible and comfortable for aging in place. This could mean open floor plans, easy-to-reach shelves or even touch-sensitive faucets for those suffering from arthritis.
Improved Mobility and Disability-Friendly Features
Borrowers can use HECM funds to improve comfort and accessibility with mobility solutions like wider doors, lower countertops, chair lifts and accessible showers.
Smart Home Systems
There are a wealth of smart home technologies that can reduce the need for physical tasks. Automated lighting, security systems and voice-controlled appliances can make a world of difference to someone with mobility or other physical issues. The funds from a HECM can make these modern conveniences accessible for many homeowners.
Benefits of Using a HECM for Repairs
A well-maintained home stands the test of time and helps safeguard against unforeseen expenses. As many find in retirement, home upkeep can fall by the wayside when living on a fixed income, especially in our current inflationary economy. A HECM can help homeowners make up for lost time with home repairs while getting ahead for the future.
Roof Fixes
The roof is the first line of defense against natural elements. Over time, it wears out, leading to leaks and potential structural damage. A HECM can help finance costly comprehensive roof repairs or replacements, ensuring homeowners protect their homes while remaining safe and dry.
Foundation Repairs
Any foundation issue can jeopardize the entire structure and lead to a cascade of structural and cosmetic repairs. With funds from a HECM, borrowers can quickly deal with often expensive foundation problems.
Updating Plumbing
Plumbing systems in older homes are prone to leaks and bursts, becoming a nightmare for homeowners. If a home’s outdated plumbing becomes unreliable, it can severely threaten its livability. Funds from a HECM can enable homeowners to avoid potential water damage and mold growth with a modern system.
Electrical System Upgrades
Older homes may be unable to handle today's electrical demands, creating inconvenient power outages and posing fire hazards. A HECM can help finance a complete electrical overhaul, ensuring safety and compatibility with modern appliances while increasing the home’s value.
Benefits of Using a HECM for Renovations
Though often last on the list of priorities, aesthetic renovations can significantly improve quality of life and home value, and funds from a HECM can help turn your current home into your dream home.
Kitchen Makeovers
The heart of the home, kitchens see significant wear and tear. A complete makeover can involve new cabinetry, modern appliances and even layout changes for better functionality.
Bathroom Redesign
A rejuvenated bathroom can offer spa-like comfort with jetted tubs, walk-in showers or heated floors. More than luxuries, these amenities add real value to the living experience and the home itself.
Ready To Explore the Benefits of a HECM for Your Home?
Your home is not only among your most significant assets, it’s also where you spend much of your time. That makes it essential to make the most of your home. A HECM can be an excellent tool to finance improvements that enhance your home's value and your quality of life.
If you've been considering ways to fund home renovations or modifications, don't overlook the potential of a HECM. If you have any questions, we're here to guide you every step of the way.
*This advertisement does not constitute tax or financial advice. Please consult a tax professional and/or a financial advisor regarding your specific situation. **There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change. Copyright©2023 Fairway Independent Mortgage Corporation (“Fairway”) NMLS#2289. 4750 S. Biltmore Lane, Madison, WI 53718, 1-866-912-4800. All rights reserved. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Reverse mortgage borrowers are required to obtain an eligibility certificate by receiving counseling sessions with a HUD-approved agency. The youngest borrower must be at least 62 years old. Monthly reverse mortgage advances may affect eligibility for some other programs. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Opportunity.