The Traditional Mortgage
The buyer contributes a down payment, then makes monthly principal-and-interest payments.
Potential advantages include a smaller upfront cash requirement, a loan balance that declines over time, more equity preserved if payments continue, and potentially lower upfront loan costs.
HECM for Purchase
The buyer contributes a larger required cash investment and then has no traditional required monthly mortgage payment.
Potential advantages include a reduced monthly cash-flow burden, more liquidity than an all-cash purchase, and a retirement-friendly payment structure, with the tradeoff that the HECM balance grows over time.
What About Qualification?
A traditional mortgage focuses heavily on income, debt-to-income ratio, credit, employment and assets. A HECM focuses on age, equity and cash investment, property eligibility, financial assessment, the ability to meet property charges, and program eligibility.
A Worked Example
Hypothetical: $650,000 home
Traditional Mortgage
- Buyer puts $130,000 down
- Finances $520,000
- Makes a required monthly payment
- Balance generally declines as payments are made
HECM for Purchase
- Buyer contributes a larger amount determined by the HECM calculation
- No traditional required monthly mortgage payment
- Loan balance grows over time
Figures are hypothetical for illustration only. The required cash investment depends on the buyer's age, property value, interest rates and current principal-limit factors.
Which Works Better for Retirement?
It depends on priorities:
- Want lower upfront cash? A traditional mortgage may win.
- Want a lower monthly housing debt payment? HECM may win.
- Want to maximize inheritance and home equity? A traditional mortgage paid down over time, or cash, may be stronger.
- Want greater retirement cash-flow flexibility? HECM may deserve serious consideration.
Can You Make Payments on a HECM Anyway?
Borrowers may generally choose to make payments even though they are not required in the same way as with a traditional mortgage. That can slow balance growth and preserve more future equity.
How Lisa Helps
Lisa can work from either lender scenario. She can show the buyer how different purchase prices affect required cash, HOA, lifestyle, resale and long-term housing needs, and coordinate the search, offer and closing.
Lisa can help you find and negotiate the home. A licensed HECM lender determines eligibility, proceeds, required cash investment, interest rate, and loan terms. HUD-approved reverse mortgage counseling is also required. Lisa is a REALTOR®, not a reverse-mortgage loan originator, financial adviser, attorney, CPA or estate-planning attorney; a traditional mortgage lender determines the conventional loan.
