Minnesota Reverse Mortgage Products
- FHA/HUD insured Home Equity Conversion Mortgage (HECM)
- Features of all Reverse Mortgage Programs
- Adjustable Rate
- Monthly Adjustable
- Annual Adjustable
- Fixed Rate
- Home Purchase
- Proprietary (Private) Jumbo Reverse Mortgages
The Home Equity Conversion Mortgage (HECM), currently the most common reverse mortgage, and the only option currently available in Minnesota, is federally insured and regulated. Lending limits are set by the Federal Housing Administration (FHA).The maximum disbursement allowed at closing cannot exceed the greater of 60% of the Principal Limit/Maximum Loan Amount or the sum of mandatory obligations (closing costs, loan and judgment payoffs, set asides, etc.) plus 10% of the Principal Limit/Maximum Loan Amount.
The up-front FHA Mortgage Insurance Premium (MIP) is .5% for initial draws of 60% or less in the 1st 12 months. If one draws more than 60% at closing or in the 1st 12 months due to mandatory obligations the up-front MIP is 2.5%. Note that one is not allowed to draw more than 60% in the 1st 12 months if they do not have the mandatory obligations.
*Mandatory Obligations include closing costs, loan and judgment payoffs, set asides, etc.
Features on all reverse mortgage programs include:
- No monthly mortgage payments*
- No income or credit qualifications for the interest rate
- Borrowers income and credit are used for a financial assessment to determine ability and willingness to pay property taxes, insurance, HOA dues if applicable
- No personal liability, they are all non-recourse
- No equity sharing or appreciation sharing
- Loan is due and payable when the home is no longer the primary residence of the borrower(s)
- Independent Counseling is required
*Borrowers responsible for property taxes, hazard insurance, maintaining the home and abiding by the terms of the loan or may face foreclosure.
Offering the most choices on how the funds are received makes the HECM Adjustable Rate the most versatile reverse mortgage program.
- Funds available in a line of credit, monthly tenure or term payments, lump sum or a combination of these subject to HUD program limits, i.e. cannot exceed 60% in the 1st 12 months.
- The available funds in the unused line of credit grow so more funds become available over time.
- With the Adjustable Program, after the 1st 12 months the remaining Principal Limit becomes available.
- One can make repayments which reduce the loan balance and then have the option to re-borrow those funds again via monthly payments or the line of credit.
- The interest rate is based on the LIBOR (London Inter-Bank Offered Rate) plus a margin.
- With the current reverse mortgage options servicing fees are not being charged on the HECM. However with past HECM reverse mortgage products a servicing fee was required. A servicing set-aside was implemented to cover the monthly servicing fee. Click here to learn about the servicing fee/servicing set-aside.
The Principal Limit Protection feature, implemented in 2006, is offered on the Adjustable Rate Program and can lock the index of the Expected Rate – however it does not lock the margin. Click here to learn about the Principal Limit Protection feature.
Visit “Frequently Asked Questions” for more details.
HECM Monthly Adjustable Program
With the monthly adjustable rate program the rate can change monthly with the first rate change occurring on the 1st day of the second full month and can occur every month thereafter. There are no limits on the amount of the rate change each month. With the monthly adjustable rate there is a lifetime cap of 5 or 10 percentage points above the interest at the time of closing depending on the lender.
HECM Annual Adjustable Rate
The HECM Annual Rate program has the same features as the Monthly Adjustable Rate although the rate adjusts annually with the first rate change occurring between 12 and 18 months from the date of closing. The rate changes thereafter must occur every 12 months. The rate cannot change more than 2 percentage points at each rate change with a lifetime cap of 5 percentage points above the initial rate at closing.
HECM Fixed Rate
With some of the same features as the HECM Adjustable Rate program, the HECM Fixed offers a fixed rate option. There is one interest rate, fixed for the term of the loan, for borrowers who are drawing 100% of their available funds up-front. With this option funds are NOT available in a line of credit or for monthly payments.
One may choose to make a payment on the fixed rate option which will reduce the loan balance however these funds are not available to re-borrower again in the future.
NOTE: While a fixed rate reverse mortgage sounds enticing, once it is understood, it may not be the best choice for a reverse mortgage unless you need all the proceeds at time of closing.
With the Fixed Rate the interest is being accrued on all funds drawn up front when it may not be necessary to take all the funds initially. Additionally, the growth rate is not available on the funds in the line of credit on all the Fixed Rate programs.
HECM Home Purchase Program
The HECM Home Purchase Program provides financing to those who desire to downsize, move closer to children or purchase a new home without having mortgage payments.
The steps to do so are the same as with the regular reverse mortgage. However there are some unique points for this beneficial home purchase option. If you are over 62 and purchasing a new home contact us to learn more about the HECM for Purchase.
Proprietary (Private) Jumbo
Reverse Mortgage Loan Programs
(Proprietary Reverse Mortgage Programs are not available in Minnesota at this time. If you currently have one of these products, they do continue to be supported.)
Proprietary Jumbo Reverse Mortgages are generally for seniors with higher home values. With much higher or unlimited lending limits, the amount of funds available to a borrower may be much greater for those with a higher home value than other reverse mortgage programs. Jumbo loans may offer more options benefitting the borrower(s) and their particular situation.
One must always look at their situation to determine which program will work best for their circumstances. Contact Reverse Mortgages SIDAC for a review of all the options of reverse mortgages in Minnesota to see which option will be the best for your situation.
Click here for Frequently Asked Questions about Reverse Mortgages.
How the funds will be received and utilized will be the factors used to determine which product is right for your situation.
Reverse Mortgages SIDAC, The Experts Excelling in Service, will work with you, providing calculations and amortization schedules, and comparisons, to review and determine which product is best for your situation.
For Reverse Mortgages in Minnesota, Give us a call for more information or clarification on the reverse mortgage products.
651-762-9648 Toll Free 877-590-9647