Free Webinar on using a HECM for Purchase for your older home buyer’s

Using Reverse Mortgage to Purchase New HomeThe National Reverse Mortgage Lender Association (NRMLA) is hosting a free webinar on using a reverse mortgage to purchase a new home during the 3rd annual Reverse Mortgage Education Week.  Reverse Mortgage Education Week is dedicated to teaching more people about the benefits of reverse mortgages, how they work, and how loan proceeds can be used to support aging in place.

Typically older homebuyers aged 62 and older, who don’t usually qualify for a conventional mortgage, or want a monthly mortgage payment, would need to pay cash for their new home.  However, there is another option, FHA’s Home Equity Conversion Mortgage (HECM) for purchase, H4P.

Seniors have used the H4P to purchase their dream home, downsize to a home more convenient for their changing health needs and move closer to their children.

Richard and Lou needed a one-level home to eliminate stairs that were getting hard to navigate.  Instead of using conventional financing or paying cash, they used the HECM for Purchase (H4P) Adjustable Rate.  Using cash from the sale and the H4P, they were able to purchase their dream home at a higher value than paying cash would have allowed, have funds for moving expenses and still have funds in a line of credit.

Join us for “Serving the Boomer Market: Guidance for Meeting Older Buyers Needs with HECM for Purchase,” an informational webinar for Realtors and agents who work with older buyers. NRMLA CRMPs Chris Bruser and Christina Harmes, Realtor Scott Degnan, and Scott Owens the General Manager of an active adult community, will explain the process for using a reverse mortgage to purchase a home and provide examples of how buyers, and sellers, can benefit from H4P.

What: Free Webinar: Serving the Boomer Market: Guidance for Meeting Older Buyers’ Needs with HECM for Purchase
When: April 24, 2018, 1:00 – 2:00 PM ET
Registration: http://bit.ly/2GxO56u

For more background on reverse mortgage loans and HECM for Purchase, take a look at these resources and media coverage that shows how the responsible use of a reverse mortgage can enhance a retirement plan:

NRMLA’s  Reverse Mortgage Education Week runs from April 23rd-27th. Check here for the calendar of all webinars.

If you’d like to learn how to utilize a reverse mortgage to purchase a new home, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-1G5

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

 

How Can A Reverse Mortgage Be Used In One’s Financial Plan?

Using Reverse Mortgage for financial planningIn a perfect world, ideally it is to not have debt of any kind including no mortgages, having a huge retirement portfolio to cover one’s lifestyle and long-term care costs.

However, in the real world, many who have thought they have saved for retirement find that when “life happens” they use those funds quickly. The reverse mortgage is a tool for planning for retirement and long-term care costs as well as more immediate needs. This way they have a plan and funds for when “life happens.”

Financial advisors, planners, insurance agents, wealth managers, estate planners, tax advisors and other financial professionals are realizing the value of using one’s home equity, especially the HECM reverse mortgage, to be part of one’s plan. There is even some discussion on the importance discussing the reverse mortgage as an option for one’s retirement plan by professors of finance at various universities.

Here are some ways a reverse mortgage could be utilized as part of one’s retirement plan.

Protect other investments/Hedge against longevity risk – With the reverse mortgage in place and having cash available, borrowers’ can protect their other investments and retirement portfolios to hedge against longevity risk if those decrease or not have to draw on those, especially in a down market. They can still have cash flow yet save the investments for future use or use those funds for an inheritance.

Eliminate current mortgage payment – By using the reverse mortgage to pay off the current mortgage it allows one to improve their cash flow and have more flexibility for their retirement planning. (Borrowers are still responsible for paying property taxes and hazard insurance.)

Payment flexibility – Payments on the reverse mortgage are not required. However borrowers can choose to make payments in an amount they choose and when they choose. If they use the reverse mortgage to pay off their current mortgage and then continue making payments, the payment will reduce the loan balance and be applied to their line of credit. The funds in the line of credit will grow, meaning they will have funds in the future to re-borrow without refinancing and having to pay closing costs again.

Another big plus with the payment flexibility is if one can’t make a payment because they are no longer working or have a medical expense, they will have better cash flow management.

Use Reverse Mortgage for Long-term careFunds for emergencies and/or long-term care – The HECM Adjustable Rate has a line of credit option with a growth rate. Taking out the reverse mortgage at an earlier age and leaving the line of credit to grow will provide more funds for emergencies and/or later when it’s likely they will need long-term care.

Purchase a new home – Rather than using cash, other retirement funds or a conventional mortgage, the HECM reverse mortgage for purchase (H4P) offers a stronger strategy. See page 19 for more details.

Proceeds are not taxable income – Because it is a loan, the reverse mortgage proceeds are not considered income and therefore not taxable. Therefore one can draw from the line of credit and not have the tax liability unlike some other retirement investments may have.

Continue working but have funds when not able to – Doing the reverse mortgage with a line of credit now could mean more funds available in the future. Borrowers can choose to continue working but when they can’t work anymore, or choose not to, they could have funds to replace their income.

While working they could choose to make payments on their reverse mortgage but then stop making payments when no longer working and take monthly draws or draws as needed to replace their work income.

Social Security claims – With the reverse mortgage in place the proceeds could replace the Social Security income when one spouse passes and they lost the 2nd Social Security income. They could set up receiving monthly payments so their cash flow continues allowing them to maintain their lifestyle.

One could use reverse mortgage proceeds to delay taking Social Security as part of their plan meaning they would increase their monthly Social Security benefits. The CFPB has cautioned about this strategy. Borrowers should consult with their financial advisors to determine if this would be a strategy for them and what is best for their situation.

Available funds even with lower home value – Because the funds are guaranteed to be available based on the home value at the time of closing (FHA insurance benefit), if home values decline (remember 2008?), the reverse mortgage borrower could still have access to more funds than the value of the home and the line of credit will continue to grow even if the home value declines.

With reverse mortgage don't have to rely on childrenNot depend on children – If one needs addition funds for maintaining lifestyle, medical expenses, long-term care, etc, the reverse mortgage could provide funds so they don’t have to rely on their children.

If children want to tap their financial portfolio to help care for their parents, a reverse mortgage on the parents home may be a better plan; providing funds for the parents needs and preserving the child’s portfolio for their own future.

Long-term Care Insurance – One may not qualify for long-term care insurance or afford the premiums so the reverse mortgage line of credit could act as an “insurance” to cover the long-care needs.

If one does qualify for long-term care insurance, the reverse mortgage line of credit could provide funds allowing a higher long-term care insurance deductible and a longer waiting period before drawing from the long-term care insurance.

Payoff spouse in a divorce – The reverse mortgage can be used to pay off a spouse going through a divorce, allowing one spouse to remain in the home.

Use in probate – In the case of the death of a parent, the reverse mortgage could be used to pay off a sibling or siblings so one can remain in the home or purchase the family home. This is beneficial when one child has been living in the home and taking care of the parent(s), and wants to remain in the home.

I am not a financial planner/advisor, accounting advisor/CPA or an attorney. This information is provided as ideas to use for one’s plan. One should consult with their financial, accounting and/or legal advisor on what works for their situation.

If you’d like to improve your retirement cash flow now or for the future, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  https://wp.me/p4EUZQ-1DT

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Do You Realize How A HECM Reverse Mortgage Compares to A Conventional Mortgage?

Comparing HECM Reverse Mortgage to a Conventional MortgageMost people have, or had, a conventional mortgage using them to purchase their home or have refinanced …yet the reverse mortgage is often misunderstood.

A reverse mortgage is a mortgage where the lender puts a lien against the property, just like conventional mortgage, but with special terms for those 62 and older.

The Home Equity Conversion Mortgage or HECM, the most common reverse mortgage is insured by FHA for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

Let’s compare the two.

Conventional/Traditional Mortgage Home Equity Conversion Mortgage (HECM) Reverse Mortgage
Loan Collateral It is a loan using the home as collateral. It is a loan using the home as collateral.
Title/Ownership The title stays in the borrower’s name, they remain the homeowner. The title stays in the borrower’s name, they remain the homeowner.
Interest Rate

 

 

Interest rate can be impacted by one’s income and credit score.  Limited income and poor credit means a higher interest rate. Income or credit scores don’t affect the interest rate.

 

Qualifying

 

 

 

 

 

Income and credit history and scores are used to for qualifying; low income or and a poor interest may mean one doesn’t qualify for the conventional mortgage.

 

 

 

Income and credit history are used to for qualifying; to determine if borrowers meet HUD’s Financial Assessment requirements. If one has a history of late payments on debt and a low residual income a Life Expectancy Set Aside may be necessary.  Under some circumstances they may not qualify.
Closing Costs

 

 

 

 

 

 

Closing costs include origination fee, appraisal, title and recording fees.

If doing a “Forward” FHA Mortgage Insurance Premiums are charged.  On conventional mortgage one may purchase Mortgage Insurance.

Closing costs are comparable to reverse mortgages…I’ve done side-by-side comparisons. (Contact us for a copy.)

Closing costs include origination fee, appraisal, title and recording fees.

FHA Mortgage Insurance Premiums are charged.

 

Closing costs are comparable to any conventional mortgage…I’ve done side-by-side comparisons.

Loan Amount Borrowed

 

 

 

 

 

 

 

 

 

Amount borrowed is based on appraised value of home, credit score and program chosen.

 

 

 

 

 

 

 

 

Initial amount borrowed is based on the age of the youngest homeowner, appraised value or FHA Lending Limit, expected interest rate and program chosen.

Over time the amount borrowed increases with the interest rate, FHA Mortgage Insurance Premium and draws being added to the loan balance.  At some point it is possible to borrow more than the value of the home at the time the loan was initiated.

If payments are made (they are optional), then they could decrease the loan balance.

Receipt of Funds

 

 

 

Conventional mortgage funds are drawn as a lump sum.

Home Equity Line of Credit (HELOC) creates a line of credit for a specific term and specific amount.

Can receive funds as monthly payments, line of credit, lump sum or a combination of these.

Line of credit grows so more funds become available over time.

Use of Funds

 

 

 

Borrowers purchase a home or refinance to have funds for what they need or want.

 

 

Borrowers benefit by having access to funds for whatever they need or want.  It can be used for more immediate needs or as a financial planning tool or even to purchase a home.
Monthly Mortgage Payments

 

 

With a conventional mortgage or HELOC one has to make monthly mortgage payments.  If the mortgage payments aren’t made, usually within 3 to 4 months, the foreclosure process will begin. The advantage is they don’t have monthly mortgage payments to make which takes away the risk of foreclosure from not making a monthly mortgage payment.
Payment Requirements

 

 

 

 

Payments are required to be made.  One has to refinance to access more funds.

 

 

 

Payments can be made, it’s a choice of the borrower as to when, how much, how often.  Making payments reduces the loan balance.

With the adjustable rate the funds are applied to the line of credit and can be borrowed without refinancing.

Interest

 

 

 

 

Interest is paid each month along with the principal.  Reducing the loan balance over the term of the loan.

If one has a balloon payment the full payment would be required at the end of the loan term…generally 10 to 15 years.

Interest is accrued over the life of the loan.  This increases the loan balance over the term of the loan.

If one chooses to make payments, the loan balance will be decreased by the of payment made.

Borrower’s Responsibilities

 

 

 

 

 

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

 

If they don’t abide by the terms of the loan, they risk a foreclosure.

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

Loan Term/Due Date

 

 

 

 

It is a loan and does need to be repaid over the life of the loan.  A conventional mortgage loan term is generally 15 or 30 years.   A HELOC’s loan term is generally 10 to 15 years.

 

 

It is a loan and does need to be repaid at the end of the loan term.  The reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower or on their 150th birthday.  (Or if they don’t abide by the terms of the loan.)
Equity Difference When Sold

 

When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference. When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference.
Non-Recourse

 

 

Conventional loans can be non-recourse; it’s determined by the lender.  Without the non-recourse factor the lender can be repaid from other assets of the borrower. All reverse mortgages are  non-recourse which means there is no personal liability to the borrower or their heirs.  The loan is paid back only from the property.
FHA Mortgage Insurance Premium Covers

 

 

If the loan balance is higher than what the home can be sold for when the loan is due, the FHA Mortgage Insurance covers the difference to the lender; the borrower or their heirs or tax dollars don’t cover this difference.
Staying in home when all funds used

 

 

 

Borrowers stay in their homes even when all funds are drawn as long as they abide by the terms of the loan.

 

 

Once a reverse mortgage is in place, even if one draws all the funds available from the reverse mortgage, the borrowers can stay in their home as long as they abide by the terms of the loan, i.e. pay property taxes and insurance, HOA dues if applicable, and maintain the home.
Protections

 

 

 

 

 

 

 

 

 

No counseling required.

 

 

 

 

 

 

 

 

 

Requires counseling by a HUD approved 3rd party counselor as a protection to help borrowers understand the details of the reverse mortgage. The processing cannot start until the counseling has occurred.

HUD regulates what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage. Mark-ups are not allowed.

Disclosures and sample closing documents must be provided to borrowers at application.

Lender/Bank and Investor Benefit

 

Lender makes money on the interest.

Would you loan money without receiving a benefit?

Lender makes money on the interest.

Would you loan money without receiving a benefit?

Loan Officer Explaining Reverse MortgageAs with any financial product, or any purchase for that matter, one should get the facts and understand the terms.

The loan officer one is working with should be explaining the features and terms of the reverse mortgage.  Yes, unfortunately there are bad apples in every industry but that doesn’t mean the product is bad.  The reverse mortgage industry has implemented protections to prevent borrowers from scam.

Understanding reverse mortgages one might find the reverse mortgage is a more viable option for their situation.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016-2018 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1zP

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Is it crucial to have no mortgage in retirement or wiser to do a reverse mortgage?

Using home equity for retirement cash flowI recently received a comment on a blog post saying that it is, “absolutely crucial that Americans reach the vocational finish line (retirement) with their personal residence being FREE & CLEAR!”  Have you also thought this?

I challenge him, and you, to consider to whose perspective is it crucial?  Your perspective, the homeowners’ or their heirs’ perspectives?  Depending on the report referenced, it’s somewhere between 80% and 90+% who want to remain in their homes and age in place, but even if they want to relocate and downsize, being debt free is less important than living their lives with security, independence, dignity and control.

Statistics show a large majority of senior homeowners have mortgages that they have to pay monthly mortgage payments on.  The debt payments can be a hardship for seniors.  Fortunately with the reverse mortgage, the most common being the Home Equity Conversion Mortgage (HECM) offered by HUD and insured by FHA, monthly mortgage payments are not required.

Yes, the reverse mortgage is a debt but to be paid back when the homeowners are no longer living in the home as their primary residence.  The reverse mortgage offers flexible payment options, borrowers can choose to make payments when they want, how much they choose to make or make no payment at all.

And yes, reverse mortgage borrowers are still responsible for paying property taxes, hazard insurance and if applicable, HOA dues.  But these expenses are part of the responsibility of home ownership whether there is a reverse mortgage, traditional mortgage, HELOC or no mortgage.

The reverse mortgage is a non-recourse loan, which means there is no personal liability to their borrowers or their heirs.

Home equity is a retirement nest egg and to use it for retirement cash flow there are two options, 1) sell it (but then where are they going to live and have improved cash flow for a longer term and for long-term care planning?) or 2) leverage the home equity with a reverse mortgage.  The line of credit option with the HECM offers a growth rate which is not available with any other loan.

Reverse Mortgages can be used for Retirement PlanningFinancial advisors are suggesting using reverse mortgages for retirement planning:  Wall Street Journal points out that advisers are now promoting reverse mortgages as a valuable tool for retirement planning in their article “New Math on Reverse Mortgages.”

As Wade Pfau, Professor of Retirement Income at The American College in Bryn Mawr, PA and a Principal and Director for McLean Asset Management, states in his article, Forbes: Wise Reverse Mortgages Can Be the Saving Grace of Unprepared  Retirees, “…that is the nature of retirement income efficiency: using assets in a way that allows for more income and/or more legacy.”

According to Jamie Hopkins, Co-Director of the American College’s New York Life Center for Retirement Income and an Associate Professor of Taxation at the American College, in Forbes, Reverse Mortgages Can Be A Retiree’s Saving Grace “Robert C. Merton, a finance professor at MIT’s Sloan School of Management, recently stated ‘Americans have wrongly steered clear of reverse mortgages.’”

Even with the HECM changes going into effect on October 2, 2017, the reverse mortgage can be a valuable tool in retirement as it always has been.

In the real world a Reverse Mortgage is another planning toolIn a perfect world, ideally it is to not have debt of any kind including no mortgages, having a huge retirement portfolio to cover one’s lifestyle and long-term care costs. 

However, in the real world, many who have thought they have saved for retirement find that when “life happens” they use those funds quickly.  The reverse mortgage is another tool for planning for retirement and long-term care costs as well as more immediate needs.  This way they have a plan and funds for when “life happens.”

If you’d like to improve your retirement cash flow now or for the future, contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide FREE information and facts with NO OBLIGATION, meeting in person whenever possible.

For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1y7

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Should you do a HECM Reverse Mortgage or leave an inheritance?

Leaving home as inheritance with reverse mortgage?“I want to leave an inheritance for my kids.”  “I want my son to get my house.”  “The reverse mortgage will eat up my inheritance.”  “The reverse mortgage isn’t good for the kids.”  “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned.

My questions are, do the children have the money needed to cover the costs of mom’s or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?  Will they have the funds in the future when there are needs?  Do the children even want the house?

Even financial planners helping their clients have funds for planning their long-term needs who suggest exploring a reverse mortgage hear, “I want to leave the house to my children.”

Let me share a story.  As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage.  In this one particular situation, the woman, Chris*, was living off her Social Security income of about $600 a month.  She needed new teeth, new glasses, some new clothes, and her home needed some repairs.  She loved going to plays but couldn’t even afford the community plays for $5 to $10.  Doing a reverse mortgage would help Chris “live with more” so she completed the application.

Son concerned about inheritance with reverse mortgageA few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it.  After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this?

Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away.  She said, “Of course not, he doesn’t have the money to help me.”

In another situation, the daughter was living with her parents, Gale and Glen*, helping them around the house and with their care.  The couple decided to do the reverse mortgage to pay off their current mortgage because when something happened to one of them the other could not afford to make the monthly mortgage payments on their current conventional mortgage.

The daughter was concerned about where she’s going to live when both of her parents are no longer in the home as their primary residence.  Even without her parents doing the reverse mortgage, with their current mortgage in place, she would have to figure out a way to pay off that mortgage to remain in the home.

  • Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage? 
  • Maybe you have some savings, funds in retirement plans, is it enough to cover your long-term care needs?
  • Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably?
  • Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives? 
  • Aren’t these the same things every one of us wants? 
  • Why would one deny your parents of living life comfortably?

Even if one’s children are able to help their parents financially today, do their parents really want to be dependent on their children?  What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents?  This can impact everyone!

Reverse Mortgage provides funds for enjoying lifeMaybe one doesn’t have immediate needs for funds as Chris did.  In planning for the future, using the reverse mortgage line of credit that grows over time, could be beneficial to provide funds when those needs arise.  The reverse mortgage funds could mean one doesn’t have to tap their other retirement funds or they could supplement them.

What if one needs home care or has medical expenses?  Why should one do without needed care so they can leave an inheritance?  Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance?  Or will the children have to help pay for the senior housing?  Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway?  Who should benefit from the use of funds or assets that the senior worked so hard for?  Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.”  This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control.  The most common, and only one available in Minnesota, is the FHA insured HECM.  The reverse mortgage offers many benefits including:

  • No monthly mortgage payment requirements (one must abide by the terms of the loan including paying paying property taxes, keeping hazard insurance on the home and abiding by the terms of the loan)
  • Income or credit are not used to qualify for a low interest rate.
  • The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.
  • As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference.  And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.
  • The borrower remains the owner of the home with the title staying in the name of the borrower(s).

In addition, the reverse mortgage has many protections, likely more than any other financial product or service.  To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

I’m happy to say Chris did proceed with her reverse mortgage.  And for years afterwards I received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs.  Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding.  And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage.  If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly.  In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

For Gale and Glen’s daughter when they are no longer in the home, if she wants to stay in that home, she would need financing to pay off her parent’s reverse mortgage.  This may be done by obtaining conventional loan, a reverse mortgage if she qualifies, or from funds as a beneficiary of a life insurance policy or other retirement programs.

So what do you think is better?  Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

Contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

When you decide to do a reverse mortgage make sure you work with a local originator or loan officer who specializes in reverse mortgages, has years of experience and knowledge in reverse mortgages in your state, preferably holds the Certified Reverse mortgage Professional (CRMP) designation, licensed in your state, is a broker, working with various lenders, and is willing to meet with you to review the details, before the application, during the application and at closing.

I would caution about working with an originator from another state who is mailing all the documentation, including the application and not “meeting” with you to explain and review what you are signing. (The lenders in another state may send a notary for application and/or closing – they are not licensed mortgage brokers so can NOT answer questions, they are there only to verify your signature.)  Ask for references and find out if the loan originator will be there for you even after the loan has closed.  If you feel pressured, call another originator.  You can find a list of questions to ask an originator at our webite:  www.RMSIDAC.com.

To ensure that borrowers understand reverse mortgages HUD requires anyone doing a reverse mortgage to complete counseling through a third-party.  They will review the program and discuss other options that may be available.

*Borrowers’ situations are real; borrowers’ names changed to protect their identity.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1ud

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Meet our HECM Reverse Mortgage Borrowers

Couple benefits from eliminating monthly mortgage paymentsThere are numerous ways homeowners use their Home Equity Conversion Mortgage (HECM) proceeds.  Meet our borrowers. . .

Eliminate Mortgage Payments:  Lisa and George** had a small mortgage remaining on their home.  It was difficult to make the monthly payments so they did a Reverse Mortgage to eliminate the payments.  There was a balance that they left in a Line of credit for future use.
(Borrowers are still responsible for paying property taxes, insurance, HOA Dues & maintaining home.)

Maintain Lifestyle:  Helen and Harold did a Reverse Mortgage to afford to take their annual trip to Florida during the winter months.  They are thankful they are able to maintain their lifestyle.

Prepare for Emergency:  Earl and Ruth did a Reverse Mortgage to be prepared for an emergency if something were to happen to one of them.

Protect Other Investments:   To have extra spending money without having to cash out their CDs or other investments, Jerry and Carol decided to do a Reverse Mortgage.

Supplement Retirement Income:  Dale and Kevin were two brothers who lived in the home where they were raised.  Being both were over 62 and owners of the property, they were able to do the Reverse Mortgage to supplement their retirement income.

Eliminate Mortgage Payments*, Home Upgrades and Line of Credit:  Dee and Peter did a reverse mortgage to eliminate their current mortgage payment*, take a lump sum for some home upgrades, receive an extra $300 a month in monthly payments to supplement their Social Security, and still have funds in a line of credit for future use.

Purchase a Car:  Bart and Tina wanted to purchase a new car but didn’t have much in the way of savings.  With a Reverse Mortgage they were able to purchase a car.

Purchase Hearing Aide and Home Repairs:  Joe needed a hearing aide but couldn’t afford it with his Social Security benefits.  Rather than taking money from his savings, he did a Reverse Mortgage.  He also used some of the money to put new siding on his home.

Pay Family Caregivers:  Sam and Frances were both in frail health.  Two of their daughters decided to care for their parents rather than hire outside services.  Since they had quit their jobs and it was affecting their family’s financial situation, Sam and Frances decided to do the Reverse Mortgage and use the funds to pay their daughters for the care they were providing.

Reverse Mortgage provides funds for travelingTraveling:  Helen was struggling to meet her living expenses with just her Social Security Benefits.  She also had always dreamed of traveling.  The Reverse Mortgage provided the extra cash she needed and she was able to fulfill her dreams of traveling.

Not Rely on Children:  Nancy had accrued some debt including some credit cards and borrowing from her children.  She did a Reverse Mortgage to pay off those debts and to have a line of credit available for future needs.  She also enjoyed having some extra cash to purchase some things to fix up her home and to go to lunch with friends on occasion.  Because her children had their own expenses and needs, they were relieved that their mother had done the Reverse Mortgage and could live more comfortably without relying on them.

Home Repairs:  Elaine needed some repairs done to her home.  They were more than she could afford on her limited income.  She did the Reverse Mortgage to pay for the repairs and to have extra funds for supplementing her income.

Home Health Care to Stay In Home:  Robert did not want to go to a nursing home, yet he needed long term care.  George, Robert’s son, decided they should do a Reverse Mortgage to pay for the home health care needed to keep Robert at home where he had raised his children.  Robert is happy because he is living where he chooses.  George is happy the family can fulfill Robert’s wishes of staying in his home and still receive the needed care.

Pay Property Taxes:  Dorothy was behind on her property taxes and facing losing her home to the county.  She did the Reverse Mortgage, paying off her back taxes and setting up a Life Expectancy Set Aside (LESA) to pay her future property taxes and insurance.  She was able to live more comfortably, not depending on her children to assist her.

Pay debts and Have Funds for Future:  Bill and Phyllis were preparing for the future.  They did the Reverse Mortgage to pay off their current mortgage*, the credit card debts, and to have money in their line of credit.  With the money in the line of credit when one of them passes away, the other would be able to change the payment plan to receive monthly payments and continue to live the lifestyle they are currently accustomed to, even without the Social Security of their spouse.

Reverse Mortgage provides funds for every day living expensesFunds for Everyday Living Expenses:  Phil became a “new man” since the Reverse Mortgage was done.  He  now goes out to eat with his friends and works in his yard.

Every Day Living Expenses:  Frank and Emma, a vibrant 90 and 86 year old couple, found that each month they were short money to even buy milk.  Their son-in-law and daughter assisted them in obtaining the Reverse Mortgage.  They are so pleased that they now can live more comfortably.  They used the proceeds to receive monthly payments to supplement their Social Security.  They also took out a lump sum to fix up their home and left enough in their line of credit to use as future needs arise.

Payback Family Loan:  Prior to learning about reverse mortgages, when Mabel couldn’t afford her mortgage payments she borrowed money from her son.  When her son needed the money back, once she learned about reverse mortgages she was able to repay him.  With her son paid off, and with no monthly mortgage payments* she was greatly relieved, felt less financial pressure, and had peace of mind knowing she didn’t owe him money and could remain independent.  During the reverse mortgage process she consulted an elder law attorney.  As a result she now has a will, power of attorney, and her health care directives in place.HECM provides funds for home care

Home Health Care: A reverse mortgage allowed Margaret, who had just been released from the rehab center and needed a home health care aide to assist her, have the funds for the care so she could remain in her home.

Purchase a New Home: Mike and Carol decided they needed a 1 level home to fit their changing health needs, they used the Home Equity Conversion Mortgage HECM for Purchase to purchase their new home instead of using conventional financing.

Wouldn't you like to sit back and relax with Security, Independence, Dignity and Control?Wouldn’t you like to sit back and relax with
Security, Independence, Dignity and Control?

Contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.

When you decide to do a reverse mortgage make sure you work with a local originator or loan officer who specializes in reverse mortgages, has years of experience and knowledge in reverse mortgages in your state, preferably holds the Certified Reverse mortgage Professional (CRMP) designation, licensed in your state, is a broker, working with various lenders, and is willing to meet with you to review the details, before the application, during the application and at closing.

I would caution about working with an originator from another state who is mailing all the documentation, including the application and not “meeting” with you to explain and review what you are signing. (The lenders in another state may send a notary for application and/or closing – they are not licensed mortgage brokers so can NOT answer questions, they are there only to verify your signature.)  Ask for references and find out if the loan originator will be there for you even after the loan has closed.  If you feel pressured, call another originator.  You can find a list of questions to ask an originator at our webite:  www.RMSIDAC.com.

To ensure that borrowers understand reverse mortgages HUD requires anyone doing a reverse mortgage to complete counseling through a third-party.  They will review the program and discuss other options that may be available.

*Borrowers are still responsible for paying property taxes, insurance, HOA Dues & maintaining home.

**Borrowers’ situations are real; borrowers’ names changed to protect their identity.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1sL

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Choosing between A HELOC and A HECM Reverse Mortgage

Choosing between HELOC and HECMPeople often look at Home Equity Lines of Credit (HELOC) to give them extra cash.  These can be a good option.  However, for those 62 and older, a Home Equity Conversion Mortgage (HECM) Line of Credit may be more advantageous.  Let’s compare the two.

 

Home Equity Line of Credit (HELOC) Home Equity Conversion Mortgage (HECM) Reverse Mortgage Line of Credit
Borrow against equity in home Yes Yes
Uses of funds There may be stipulations that funds can only be used for certain things, i.e. remodel, adding an addition. No restrictions.
Draw Period, time during which you can access funds/Repayment Period, time when you make payments to repay the loan Draw Period is usually 5 to 10 years; when draw period ends you can no longer access funds.

 

 

 

Repayment period is usually 10 or 20 year terms; Some may require a payment of the full balance at one time at the end of the draw period.

Longer term: Draw period is as long as the home is your primary residence and you abide by the terms of the loan and there are funds available in your line of credit.

 

Repayment is due when the home is no longer the primary residence, usually when borrower dies, sells or moves.  Due date on mortgage document is 150th birthday of youngest borrower.

Payment Requirement Yes – requires a minimum monthly payment of interest during Draw Period; eventually increasing to include principal to pay entire loan balance during Repayment Period. No – Offers flexible option; No monthly mortgage payment required but can choose to pay as little or as much as you want or NOT at all.
Responsible for Property Taxes, Insurance, maintaining property; paying HOA dues if applicable Yes Yes
Interest Rates Most are Adjustable Rate; as interest rate rises payments will also rise.

 

 

Generally no cap on the size of the adjustments.  Lifetime caps may be available for a shorter term HELOC.  May vary by State law.

Adjustable Rate.  Interest added to loan balance, only impacting loan balance at end.  (See Non-recourse Loan.)

 

Adjustable Rate Options have a lifetime cap on the rate; for the monthly adjustable rate it is10 points and for the annual rate it is 5 points over the initial rate at the time of closing.

Fixed rate option is available but does not offer Line of Credit option, all available funds must be drawn at closing.

Called due or Freezing Funds Banks can call the loan due or freeze funds not yet used or cut the Line of Credit if they find adverse information about the borrower’s credit or as the market changes as was done when home values declined. Line of Credit cannot be frozen as long as you meet terms of the loan.  Because FHA insures the loan it’s guaranteed to be there for you during term of the loan.
Line of Credit Growth Rate No Unused Line of Credit grows so more funds become available in future with Adjustable Rate Option.
Re-borrow LOC Funds Yes Yes; If loan payment(s) made, reduces loan balance and funds can be re-borrowed in future with Adjustable Rate option.  Line of Credit is not available with the Fixed Rate Option so funds cannot be re-borrowed.
Non-recourse Loan – The loan can only be repaid with the value of the home. There is no personal liability to repay the loan from the borrower or their heirs. No Yes
Qualifying Lenders look at income, credit worthiness including credit scores, and ability to make HELCO payments.  Regulatory requirements and restrictions may prevent some seniors qualifying. 62 and older, meet Financial Assessment requirements demonstrating their ability and willingness to pay property taxes and insurance into the future.  In some circumstances a Life Expectancy Set Aside may be required to cover the property taxes and insurance.
Planning for future Short term loans limit use in future when one might need long-term care. Longer term loan offers options for planning and potentially having funds for long-term care needs in the future.

If you are looking for funds for a short period of time, you can afford to make payments and you qualify, a HELOC may be the best option for your situation.*

Happy they decided on HECM Reverse Mortgage over HELCO

For those 62 and older, generally the HECM is more advantageous over a HELOC. 

With the flexibility of making payments toward the loan balance, or NOT making a mortgage payment at all, the HECM reverse mortgage line of credit could be part of your plan for when life changes.
(Borrowers are still responsible for paying property taxes, hazard insurance and maintenance of the home.)

The HECM Line of Credit funds, which have a growth rate on unused funds, can provide some safeguards if one’s situation changes such as loss of job, Social Security or pension reduced because of the loss of a spouse, or changed or reduced of financial assets.  Or if “life happens” with funds in a HECM line of credit you could cover your long-term care needs.

Additionally one can change their payment plan option to receive tenure or term monthly payments; this can benefit them as their needs change.

*If you do a HELOC then later decide to do a HECM, there is a 12 month seasoning requirement, have to wait 12 months, after taking out the HELOC and drawing $500 or more.  Doing the HECM initially may make more sense.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1qE

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Refinancing A Reverse Mortgage – Should you?

Receiving Letters to Refinance Reverse MortgageCurrent reverse mortgage borrowers are receiving letters encouraging them to refinance.  While refinancing a reverse mortgage is an option, let’s explore whether it should be considered.

Just like refinancing a conventional, or what we call a forward, mortgage, borrowers consider refinancing a reverse mortgage when they need more money.  But just like a forward mortgage, one needs to make sure they are going to receive a benefit when they refinance.  And just like a forward mortgage, when refinancing the closing costs are part of the transaction.

When I receive the calls from my borrowers who have received the letters or encouragement on their statements I start with these questions:

  • How long ago did you take out your reverse mortgage?
  • What was the value of your home at that time?
  • What is the value of your home now?
  • What is your current loan balance on your reverse mortgage?
  • Are you receiving monthly payments?
  • Do you have funds in a Line of Credit?
  • Why would you want to refinancing?

These questions are pertinent in helping one decide if it makes sense to consider refinancing.

Keep in mind the factors used to determine the amount a senior can receive from their reverse mortgage include:  the interest rate of the program chosen, the age of the borrower (the older one is the more funds one can receive), and the home value based on an FHA appraisal or the FHA Lending Limit.

The first three questions are important in determining if you will be able receive more money when refinancing.  As one aged during the time home vales were increasing refinancing made more sense because borrowers were more likely to be able to receive additional funds.

As you know, during the housing crash home values decreased.  Now while home values have started to increase, we often find that the borrowers will still not receive additional funds from refinancing their reverse mortgage. (However some states the values have increased faster and higher than others.  In MN, while increasing, the values have not increased enough to warrant refinancing in many situations.)

If, however, the initial reverse mortgage was taken when there was a lower lending limit, i.e. $251,750 and the current home value is, say $400,000, then refinancing may be considered.

For many years the FHA Lending Limit was based on the county in which one lived.  In 2008 the Lending Limit was changed to a national limit of $417,000.  In 2009 and through the end of 2016, the national limit was $625,500.  January 1st through December 31, 2017 the FHA Lending Limit for reverse mortgages has been increased to $636,150.

Is refinancing a good idea just because the Lending Limit has increased?  Not necessarily, especially if one’s home value isn’t in the higher valued range.

The current loan balance is important because when refinancing the reverse mortgage, the current reverse mortgage needs to be repaid.  If there aren’t enough proceeds to pay off the current mortgage and to receive additional money then refinancing doesn’t make sense.

The next two questions, whether they are receiving monthly payments or have funds in a line of credit, are important because most likely it doesn’t make sense to refinance a reverse mortgage if they still have funds available to them that will last them for a few more years.

With a forward mortgage sometimes refinancing is done to reduce the interest rate.  With the reverse mortgage generally it doesn’t make sense to refinance for the interest rate.  Remember one isn’t making payments with a reverse mortgage so the interest rate doesn’t impact their monthly cash flow, it only impacts the amount that will be repaid when the loan becomes due and payable.

It is important to note that the reverse mortgage is non-recourse which means there is no personal liability to the borrower or their heirs if the loan balance is higher than what the home can be sold for.

The funds available to borrowers are determined by the age of the youngest borrower, the Expected Interest Rate and the program chosen.  If the Expected Interest Rate is higher, less funds will be available.

Until 2008 all reverse mortgages were adjustable rate mortgages.  Don’t panic, this isn’t a bad thing with a reverse mortgage.  With the adjustable rate reverse mortgage there is more flexibility by having the option of a line of credit, monthly payments, a lump sum or a combination of these.

The adjustable interest rate is made up of an index and a margin.  The index is based on the LIBOR and the margin is determined by the lender.  HUD set a floor at 5.06% which means the funds available will be the same if the interest is at 5.06 or below.   Currently the interest rates are remaining low, below the floor so one generally will not receive more funds if they were to refinance.

In 2008 a fixed rate option was introduced.  With the fixed rate one has to draw all funds as a lump sum; the line of credit and monthly payment options are not available.  One is not going to gain a benefit of more funds available by refinancing for a lower interest rate.  However we have had some who refinance from a fixed rate to an adjustable rate to receive the flexibility the adjustable rate option offers, especially if one chooses to make payments on their reverse mortgage.

When refinancing one will still have closing costs so you have to consider if refinancing will offset off set a lower interest rate and/or funds one is receiving.

The Streamline Refinance of the FHA Housing and Urban Development (HUD) Home Equity Conversion Mortgage or HECM reverse mortgage requires a calculation demonstrating borrowers receive at least 5% more or they must go through the counseling session to review their situation.  Some lenders require the counseling for any borrower refinancing their reverse mortgage.  This is a strong protection to help borrowers from falling for a lender’s marketing letters and thinking refinancing may be a good idea when it really isn’t.  Unfortunately it can cost seniors to find out this information as counselors are allowed to charge, generally $125 for the counseling session.

The National Reverse Mortgage Lenders Association (NRMLA) ethics committee set a guideline that reverse mortgage borrowers who want to refinance must wait a minimum of 18 months along with the “closing cost test” and “loan proceeds test.”

The last question or why you are considering is important in the decision to refinance because there could be valid reasons to refinance that benefit you.  Some include a title change, i.e. adding a younger spouse to title when they turn 62, taking on a new spouse are a couple reasons.  Reverse Mortgage Borrower Contemplating Options

While options should always be considered, after reviewing the above questions and your answers, at this time refinancing generally doesn’t make sense for the majority of reverse mortgage borrowers.  Hopefully seniors don’t get sucked in with marketing letters & statements by completing an application so that the lender can just take an application when refinancing doesn’t make sense for them.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2017 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1q4

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Believe It Or Not, Reverse Mortgages Are NOT A Scam!

Comments under factual articles in the media, “warnings” to those interested in exploring a reverse mortgage, and even research says people are afraid of reverse mortgages because they think they are a scam.

Attention, Reverse Mortgages are NOT ScamMost people have, or had, a conventional mortgage using them to purchase their home or have refinanced their original purchase mortgage…these aren’t considered a scam.  So why are reverse mortgages considered a scam?

A reverse mortgage is a loan to a homeowner using the home as collateral or security where the lender puts a lien against the property, just like conventional mortgage, but with special terms for those 62 and older.

The Home Equity Conversion Mortgage or HECM, the most common reverse mortgage, is insured by FHA for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

Whether a conventional mortgage or a reverse mortgage, borrowers are responsible on how they use the funds from their loan.  If not used wisely, with a conventional mortgage the borrower is said to be irresponsible; with a reverse mortgage it is said the lender took advantage of the borrower and it’s a scam.  Why?  It is the borrower who is making the choices.

Let’s compare the two.

Reverse Mortgage Conventional Mortgage
Loan Collateral It is a loan using the home as collateral. It is a loan using the home as collateral.
Title/Ownership The title stays in the borrower’s name, they remain the homeowner. The title stays in the borrower’s name, they remain the homeowner.
Interest Rate

 

Income or credit scores don’t affect the interest rate.

 

Interest rate can be impacted by one’s income and credit score.  Limited income and poor credit means a higher interest rate.
Qualifying

 

 

 

 

 

 

 

One homeowner needs to be 62 or over.  Income and credit history are used to for qualifying; to determine if borrowers meet HUD’s Financial Assessment requirements. If one has a history of late payments on debt and a low residual income, a Life Expectancy Set Aside may be necessary.  Under some circumstances they may not qualify.  These requirements are lower and less strict than a traditional loan. Income and credit history and scores are used to for qualifying; low income and/or a poor credit may mean one doesn’t qualify for the conventional mortgage.

 

 

 

 

 

Closing Costs

 

 

 

 

 

 

 

 

Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

FHA Mortgage Insurance Premiums are charged.

 

 

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.

Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

If doing a “Forward” FHA Mortgage Insurance Premiums are charged.  On conventional mortgage one may be required to pay for Mortgage Insurance.

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.

Loan Amount Borrowed

 

 

 

 

 

 

 

 

 

Initial amount borrowed is based on the age of the youngest homeowner, appraised value or FHA Lending Limit, expected interest rate and program chosen.

Over time the amount borrowed increases with the interest amount charged, FHA Mortgage Insurance Premium and draws being added to the loan balance.  At some point the amount borrowed could be more than the value of the home at the time the loan was initiated.

If payments are made (they are optional), then they could decrease the loan balance.

Amount borrowed is based on appraised value of home, credit score, income, debts, and program chosen.

 

 

 

 

 

 

 

 

Receipt of Funds

 

 

 

 

Can receive funds as a line of credit, monthly payments to the borrower, lump sum or a combination of these.

Line of credit increases monthly so more funds become available over time. The available line of credit can never be withdrawn by the lender if borrower is abiding by the terms of the loan.

Conventional mortgage funds are drawn as a lump sum.

 

Home Equity Line of Credit (HELOC) creates a line of credit for a specific term and specific amount. The line of credit does not increase and the lender can withdraw the loan at any time.

Use of Funds

 

 

Borrowers benefit by having access to funds for whatever they need or want.  It can be used for more immediate needs or as a financial planning tool or even to purchase a home. Borrowers purchase a home or refinance to have funds for what they need or want.

 

Monthly Mortgage Payments

 

The advantage is monthly mortgage payments are not required make which takes away the risk of foreclosure from not making a monthly mortgage payment. With a conventional mortgage or HELOC one has to make monthly mortgage payments.  If the mortgage payments aren’t made, usually within 3 to 4 months, the foreclosure process will begin.
Payment Requirements

 

 

 

 

 

While monthly mortgage payments are not required, they can be made; it’s a choice of the borrower as to when, how much, how often, or not at all. Making payments reduces the loan balance.

With the adjustable rate, the funds are applied to the line of credit and can be re-borrowed without refinancing.

Payments are required to be made.

 

 

 

One has to refinance to access more funds.

 

Interest

 

 

 

 

 

Interest is accrued over the life of the loan.  This increases the loan balance over the term of the loan.

 

If one chooses to make payments the loan balance will be decreased by the amount of payment(s) made.

Interest is paid each month along with the principal generally reducing the loan balance over the term of the loan.

If one has a balloon payment the full payment would be required at the end of the loan term…generally 10 to 15 years.

Borrower’s Responsibilities

 

 

 

 

 

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

Loan Term/Due Date

 

 

 

 

It is a loan and does need to be repaid at the end of the loan term.  The reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower.  (Or if they don’t abide by the terms of the loan.)  The due date on the mortgage is the 150th birthday of the youngest borrower. It is a loan and does need to be repaid over the life of the loan.  A conventional mortgage loan term has a due date generally in 15 or 30 years from the closing date.  A HELOC’s loan term has a due date generally in 10 to 15 years from the closing date.

 

Equity Difference When Sold

 

When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference. When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference.
Non-Recourse

 

 

All reverse mortgages are non-recourse which means there is no personal liability to the borrower or their heirs.  The loan is paid back only from the property. Conventional loans can be non-recourse, it’s determined by the lender.  Without the non-recourse factor the lender can be repaid from other assets of the borrower.
FHA Mortgage Insurance Premium  Covers When Loan Due

 

 

If the loan balance is higher than what the home can be sold for when the loan is due, the FHA Mortgage Insurance covers the difference to the lender; the borrower or their heirs or tax dollars don’t cover this difference.
Staying in home when all funds used

 

 

 

Once a reverse mortgage is in place, even if one draws all the funds available from the reverse mortgage, the borrowers can stay in their home as long as they abide by the terms of the loan, i.e. pay property taxes and insurance, HOA dues if applicable, and maintain the home. Borrowers stay in their homes even when all funds are drawn as long as they abide by the terms of the loan.

 

 

 

Protections

 

 

 

 

 

 

 

 

Requires counseling by a HUD approved 3rd party counselor as a protection to help borrowers understand the details of the reverse mortgage.  The processing cannot start until the counseling has occurred.

HUD regulates what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage.  Mark-ups are not allowed.

Disclosures and sample closing documents must be provided to borrowers at application.

No counseling required.

 

 

 

Mark-ups on such items as processing and underwriting fees and courier fees can be charged.

 

 

 

Lender/Bank and Investor Benefit

 

 

Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

Use a reverse mortgage to stay in homeAs you can see, reverse mortgages compare to conventional mortgages and they are NOT a scam.  As with any financial product, or any purchase for that matter, one should get the facts and understand the terms of what they are purchasing.

The loan officer one is working with should be explaining the features and terms of the reverse mortgage.  Yes, unfortunately there are bad apples in every industry but that doesn’t mean the product is bad.  The reverse mortgage industry has implemented protections to prevent borrowers from scam.

Don’t jump to conclusions! Understanding them, one might find the reverse mortgage is a viable option for their situation.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1ph

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Why You Pay FHA Mortgage Insurance Premiums on Reverse Mortgages

Puzzled by FHA Mortgage Insurance PremiumThis is a question I recently received:

Hello Beth.
I notice that the monthly costs for my reverse mortgage loan include very costly mortgage insurance. From my experience as a homeowner, mortgage insurance was to cover the mortgage payment in the event the mortgagee could not make payments for one reason or the other. Since there are no mortgage payments in a reverse mortgage loan, why do I have to pay mortgage insurance?
Thank you.

This is a very good question!

With conventional mortgages many people look at mortgage insurance premiums as protection of risk if they, the borrowers, can’t make their monthly mortgage payments.  The reverse mortgage doesn’t have monthly mortgage payments required for this product. Although with the reverse mortgage there is a repayment required, it is one payment when the loan becomes due and payable, generally when the borrower(s) is(are) no longer in the home as their primary residence.

Mortgage insurance on a reverse mortgage does not protect the consumer or borrowers obligation to pay the loan balance when the home is no longer the primary residence of the borrower or if they haven’t abided by the terms of the loan.

However, with a Federal Housing Administration (FHA) insured Home Equity Conversion Mortgage or better known as a HECM reverse mortgage, there is a required mortgage insurance premium by FHA. The FHA Mortgage Insurance Premiums (MIP) offer significant benefits for reverse mortgage lenders, investors, as well as the borrowers.

The FHA required MIP are in place even though one is not making mortgage payments for several reasons:

  • The insurance protects the investors against risk and loss.

There are also advantages and increased borrowing power for the borrowers with FHA insuring the reverse mortgage.  These  include:

  • Guaranteeing the funds are available for you, the borrower, during the term of the loan.  With HELOCs the bank/lender can call the loan due and payable if there are changes with the bank, for example they merge with another bank/lender or they close their doors.
  • Guaranteeing the reverse mortgage lender against default or shortfalls means the interest rates are lower compared to other mortgages for the benefits one receives with the reverse mortgage.  i.e.,
    • With conventional loans the interest is impacted by one’s credit score.  With the reverse mortgage one’s credit, even if it’s poor, does not impact the interest rate.
    • The FHA insurance on the HECM loans keep the interest rate low and allows more dollars to be loaned than with proprietary programs.  Proprietary reverse mortgage programs have a higher interest rate to cover the lender’s and investor’s risks and loss.
  • Providing a line of credit growth rate (available only with reverse mortgages).  The tenure monthly payment option also has a growth rate factored in when the tenure payment is calculated.
  • As a reverse mortgage it is a non-recourse (no personal liability) loan.  What this means is if the loan balance on the reverse mortgage is higher than what the fair market value is on the home when the loan is due and payable, the FHA MIP will cover the difference to the lender rather than the borrowers or their heirs having to come up with the difference.

If you are considering a reverse mortgage, look at the benefits of the reverse mortgage which include:

  • No monthly mortgage payments, therefore increase your cash flow.
  • With no monthly mortgage payments required the risk of default due to not being able to make monthly mortgage payments is reduced.  (Borrowers are still required to pay property taxes, keep hazard insurance on and maintain the property and pay home owners association dues if applicable.)
  • A line of credit option which has a growth rate making more funds available to you in the future, no other mortgage offers this.  Or you can use the funds to receive monthly payments either as tenure (life of the loan) or an amount set by you.
  • Non-recourse, no personal liability to you or your heirs.

While there have been different structures for calculating the MIP with past programs, currently, the up-front FHA MIP is .5% of the property value or mortgage lending limit, whichever is less if borrowing 60% or less of the Principal Limit within the 1st 12 months; 2.5% if borrowing more than 60% of the Principal Limit within the 1st 12 months. The on-going MIP is 1.25% of the loan balance.

Received benefits with Reverse MortgageTo summarize, while one is not making payments on their reverse mortgage, the FHA Mortgage Insurance Premium with the reverse mortgage provides benefits over conventional and HELOCs where mortgage payments are required, which cannot be received with any other mortgage.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

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Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

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