One of the great features of the home equity conversion mortgage (HECM) program is that eligible seniors have multiple options designed to meet a variety of different needs. They can a) draw cash upfront; b) select a credit line on which to draw in the future at their own initiative; c) receive a tenure annuity for as long as they remain in their home; and d) receive a term annuity for a period the senior selects.

These options allow seniors to meet a large variety of needs. Here is a partial list, indicating the option involved:

One of the great features of the home equity conversion mortgage (HECM) program is that eligible seniors have multiple options designed to meet a variety of different needs. They can a) draw cash upfront; b) select a credit line on which to draw in the future at their own initiative; c) receive a tenure annuity for as long as they remain in their home; and d) receive a term annuity for a period the senior selects.

These options allow seniors to meet a large variety of needs. Here is a partial list, indicating the option involved:

  • They can relieve themselves of the monthly payment obligation on an existing mortgage or other debt by paying it off with a HECM, which has no required payment (a).
  • They can minimize the cash drain involved in purchasing a house by taking a HECM in conjunction with the purchase (a).
  • They can draw funds intermittently to meet unanticipated or special occasion cash needs (b).
  • They can offset the loss of a pension when the spouse drawing the pension dies (b).
  • They can supplement their income for as long as they live in their home (c).
  • They can supplement their income for a limited period until they sell their home (d).
  • They can replenish the gap in available funds when they outlive their financial assets (b and d).

The list above is partial because it does not include the use of a HECM for multiple purposes. Seniors can combine a cash withdrawal with a credit line, a tenure payment or a term payment. Similarly, they can combine a credit line with a tenure payment or a term payment. Option combinations substantially expand the list of needs that can be met with a HECM.

But sadly, most seniors are not taking advantage of this versatility in the program. Most simply draw the maximum amount of cash allowed at the outset, period. While this is justified in some cases, indications are that in too many cases the funds are not being deployed prudently. There are three interrelated reasons for this:

  • Shortsightedness on the part of seniors. They tend to overvalue the present and undervalue the future, just like their juniors.
  • Absence of good advice. Loan officers would lose money if they encouraged seniors to shift from cash withdrawals to credit lines, and counselors are barred from expressing a preference for one option over another.
  • The poor quality of information available on alternative options. Some seniors don’t even know there are options other than all-cash withdrawals, and many of those that do know are deterred by an unjustified fear that the adjustable-rate HECMs required for all but the all-cash withdrawal would be risky for them.

The best available information is poor because lenders don’t view the provision of information as a help in generating business. Most lenders don’t have HECM calculators on their websites, and almost all of those that do require users to identify themselves so that they can be contacted afterwards by salespersons.

Users do not have to identify themselves to use a calculator from Ibis Software that is available from HUD’s Web page on HECMs, and from the website of the National Reverse Mortgage Lenders Association (NRMLA), the trade association.

This calculator, however, does not cover all the relevant combinations of HECM features that might interest a senior; it does not allow users to see how the different options affect their future finances, and it provides very little explanatory information.

My colleagues and I decided to remedy this and have designed a new HECM Calculator that is now on my website. The calculator is actually 10 interconnected calculators designed so that one of the 10 provides the precise HECM option or combination of options that the senior needs.

The calculators show not only the transaction features, but also project the status of the transaction (including outstanding debt and unused credit line) every year until the senior reaches age 100. Each calculator includes explanatory text and examples of how it is used. The table shows how our calculator compares to the Ibis calculator:

HECM Feature

MP Calculator

Ibis Calculator

Interest Rate, Fees and Other Closing Costs

Yes

Yes

Maximum Cash Withdrawal

Yes

Yes

Maximum Credit Line

Yes

Yes

Maximum Monthly Tenure Payment

Yes

Yes

Maximum Monthly Term Payment

Yes

No

Maximum Credit Line With Specified Cash Withdrawal

Yes

No

Maximum Credit Line With Specified Tenure Payment

Yes

No

Maximum Credit Line With Specified Term Payment

Yes

No

Maximum Tenure Payment With Specified Cash Withdrawal

Yes

No

Maximum Tenure Payment With Specified Credit Line

Yes

Yes

Maximum Term Payment With Specified Cash Withdrawal

Yes

No

Future Loan Balances

Yes

No

Future Home Equity

Yes

No

Future Credit Line

Yes

No

Examples of Each Possible HECM Option Use

Yes

No

Online Help

Yes

No

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×