What is the difference between a mortgage and a home equity conversion mortgage (HECM)?

@jeanie 

A mortgage is a financial agreement where a borrower obtains a loan from a lender to purchase a property. The property serves as collateral, and the borrower makes regular payments to repay the loan over an agreed period, usually 15 or 30 years. The borrower owns the property and builds equity over time as they repay the mortgage.

On the other hand, a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage, is a type of mortgage specifically designed for homeowners aged 62 or older. It allows them to convert a portion of their home's equity into usable funds without having to sell the property or make monthly mortgage payments. The loan is repaid when the homeowner permanently moves out of the property, sells it, or passes away.

Some key differences between a traditional mortgage and a HECM include:

1. Age requirement: A traditional mortgage has no age restriction, while a HECM is only available to homeowners aged 62 or older.
2. Loan repayment: In a traditional mortgage, regular monthly payments are made to repay the loan over time. In a HECM, borrowers do not make monthly payments; instead, the loan is repaid once the homeowner moves out or passes away.
3. Use of funds: With a traditional mortgage, borrowers use the loan to purchase a property. With a HECM, homeowners convert a portion of their home's equity into usable funds, which can be used for various purposes, such as covering living expenses, healthcare costs, or home improvements.
4. Ownership: In a traditional mortgage, the borrower owns the property and builds equity over time. With a HECM, the homeowner retains ownership, but the lender places a lien on the property to secure the loan.
5. Loan limits: HECMs have specific loan limits based on the home's value, the borrower's age, and current interest rates. Traditional mortgages may have different loan limits depending on the type of loan and other factors.

It's important for homeowners to thoroughly understand the terms, requirements, and potential implications of both traditional mortgages and HECMs before deciding which option best suits their needs and circumstances.