Which loan product allows a homeowner aged 62 or older to convert home equity into cash proceeds without making monthly mortgage payments, with repayment deferred until the borrower sells, vacates, or dies?
Correct Answer
A) Reverse mortgage (HECM)
A Home Equity Conversion Mortgage (HECM), insured by FHA and commonly called a reverse mortgage, allows homeowners aged 62 or older to draw on their home equity as a lump sum, line of credit, or monthly payments. No monthly mortgage payments are required; the loan becomes due when the borrower permanently leaves the home, sells it, or passes away.
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Related Topics & Key Terms
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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