In the United States, a home equity conversion mortgage is a type of mortgage that is available to people who are 62 years of age or older. These mortgages are obtained by older people who want to use the equity in their homes to their advantage. They can take loans against their home equity and delay repayment as long as they are living in their homes. This means a person can benefit from loan funds to handle his financial needs, without having to worry about immediate repayment.
Home equity conversion mortgages are offered through a program administered by the United States Department of Housing and Urban Development (HUD). In order to secure one of these loans, a person has to find a HUD-approved lender. The Federal Housing Administration is charged with insuring the loans offered through this program.
When a person seeks a home equity conversion mortgage, he asks a lender to loan him money based on the amount of ownership he has in his home. For example, if a person owes $100,000 US Dollars (USD) for a home that is worth $120,000 (USD), he is said to have $20,000 (USD) in equity. A person can borrow against this equity, essentially receiving a loan that uses his ownership in his property as collateral.
An individual who secures a home equity conversion mortgage can choose to receive his loan money as a lump sum or as installment payments. For example, a borrower may need a large sum of money to pay for medical care or to fund a dream vacation. In such a case, he may opt for a lump-sum payment. Another borrower may, for example, be struggling to make ends meet and need more money to meet his monthly expenses. For him, opting for regular monthly payments may be more beneficial. A borrower may even opt to receive his loan proceeds in the form of a line of credit.
A person who secures a home equity conversion mortgage may feel almost as if he is getting free money. This money does have to be repaid, however. When a borrower moves out of his home or sells it, he is expected to repay the loan in full. For example, if he sells his home, the proceeds of the sale would usually be used to pay off the loan. If the sale proceeds are in excess of the money a borrower needs to repay this debt as well as any other loans he’s taken for the property, he may keep the excess amount.