Reverse Mortgages are not complicated; but are multi-faceted

Reverse Mortgages are not complicated but multi-facetedIt is often stated that reverse mortgages are complicated or complex transactions. In reality reverse mortgages aren’t any more complex than a conventional mortgage or other financial products. Do you understand all the terms and features of a conventional mortgage or HELOC? Do you understand your 401K’s, stock investments or other retirement plans? What about your credit card(s)… do you know how they work?

Comparing Your Smart Phone To A Reverse MortgageMy smart phone has so many bells and whistles I don’t understand all the options or how it works. They too can seem complex but are really just multi-faceted. I still utilize one and I don’t think I could live without it any more. If people are open to getting the facts, they will likely have a better understanding of reverse mortgage and might just find it useful.

Rather than looking at reverse mortgages as complicated, look at them as they are multi-faceted.

Let’s clarify some of the facets about reverse mortgages.

People still think the bank or the lender will own the home once the reverse mortgage is done. Or the bank or lender will take ownership once the loan becomes due and payable. However, like a conventional mortgage or HELOC, the title remains in the homeowners’ name, the bank or lender does NOT own the home. When the reverse mortgage borrowers are no longer in the home as their primary residence, the loan becomes due and payable.

The amount repaid is the amount borrowed by the homeowners including interest and FHA Mortgage Insurance Premiums over the term of the loan. (Because one is not making payments, essentially one is making small loans each month.)

After the loan balance is paid off, any remaining funds go to the borrowers or their heirs. As a non-recourse loan, if the loan balance is higher than the fair market value of the home, the borrowers or their heirs don’t have to come up with the difference.

Other false statements often seen or heard are that reverse mortgages are a scam, only the lender benefits. They take advantage of people. Let me clarify, the most common reverse mortgage, the Home Equity Conversion Mortgage (HECM) is FHA insured and regulated by HUD – no, not scams but a valid loan using a home as collateral.

Celebrating having a revese mortgageBorrowers receive many benefits in having funds to use for current needs or retirement and long-term care needs without having to make monthly interest and principal payments, improved cash flow without restrictions on how the funds can be used, being able to stay in their home or purchase a new home.

Originators and lenders do get paid for reverse mortgage loans, but everyone gets paid for the work they do. Personally I find it rewarding to help people, and I’m not ripping people off, in fact I and others I know in the industry are certainly not getting rich in this career…there is a lot of work involved to originate reverse mortgages, but we’re passionate in making a difference for people. In fact, because of all the work, on some loans our compensation works out to very little.

Headlines have stated seniors are losing their homes to foreclosure if they don’t pay property taxes or keep insurance on the home. Think about it, with or without a mortgage if you don’t pay property taxes, the county will foreclose. If you don’t have insurance on your property and the home is destroyed you will have lost your home and you won’t have the money to rebuild or replace it. Neither of these are the fault of a reverse mortgage.

We often see or hear that the reverse mortgage should be a last resort, to refinance with a conventional mortgage or Home Equity Line of Credit (HELOC) or sell. The problem with this is most seniors don’t qualify for conventional mortgages or HELOCs. And if they do, the borrowers have to make monthly mortgage payments. Even if they can make the payments now, if life happens they may not be able to make the payments in the future. Rather than being a last resort the reverse mortgage can help one pay for retirement, long-term care.

The unused portion of the reverse mortgage line of credit grows so more funds can become available in the future. And the funds in the line of credit could be higher than what one could qualify for in the future. This can be very beneficial to seniors and isn’t available with any other loan.

Seniors often want to stay in their home rather than moving so don’t tell them to sell. If they do sell, where are they going to live? They’d still have housing expenses…can they afford those or wouldn’t having no rent or monthly mortgage payments be more beneficial?

HECM for Purchse If they do wish to sell maybe to downsize, move closer to their children or to purchase the home of their dreams, the HECM for Purchase program gives them the option to purchase without having to make monthly principal or interest payments. And maybe even create a line of credit for future needs.

Have you heard or read reverse mortgages are expensive? Have you looked at the costs of a traditional or forward mortgage? The costs are the same other than the FHA Mortgage Insurance Premium. With a conventional mortgage people want to know what the payment will be and what the interest is, they generally don’t pay attention to the costs. But when you look at the costs of the conventional mortgage you’ll likely be surprised, they aren’t really different from reverse mortgages.

HELOC’s may have lower up-front fees but the interest rate may be higher which in the long run could turn out to be more expensive than a reverse mortgage… besides one has to qualify on income, assets and credit. Additionally payments have to be made on the HELOCs. And there is a risk that they HELOC could be called due and at some point during the term the monthly payment must be increased to include the principal, not just the interest.

Other headlines or statements about reverse mortgages state the bank/lender gets the children’s inheritance. Another false one! The homeowners receive funds during the term of the loan, whether to pay off conventional loans or receiving funds monthly or draws from their line of credit. When the loan is being paid, due when the home is no longer the primary residence of the borrower(s), there may or may not be funds left for an inheritance. The lender is receiving payment of principal and interest, this is NOT stealing the children’s inheritance from the remaining equity. With the reverse mortgage, the homeowner is using the funds for their needs or wants. Are you as heirs going to give them the funds they need just so you have an inheritance? What about letting your parents live their quality of life and not worry about getting an inheritance?

The last one I’m going to cover today is the option that lowering your expenses is a better option. Really? Most seniors don’t have this option. Seniors want to maintain their lifestyle and why shouldn’t they? Do you want to be told to lower your expenses, stop getting your hair done, not having cable TV, being able to get together with friends for lunch, go to a family wedding or reunion? Just because one turns 62 doesn’t mean they can’t enjoy life especially when they have equity in their home they can utilize.

Understanding Reverse Mortgages-A Book About Reverse MortgagesTake time to understand and have the facts. Those who do, see the reverse mortgage is not complicated but many faceted and they see the benefits it can bring to their lives.

If you’d like to understand and get the facts on reverse mortgags? 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 without modifications and includes the contact information, copyright information and the following link: https://wp.me/p4EUZQ-1V5

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 know your long-term care options and why to consider financing with a reverse mortgage?

Your road map for long-term care optionsEducation and planning are the keys to making decisions especially when it involves care while aging. You need to be proactive and know what resources and options are available. With the education and a plan you have more options and can be proactive rather than reactive.

As Forest Gump said, “Life is like a box of chocolates, you never know what you’re gonna get.” This is especially true for aging. I was fortunate to participate in and be considered a trusted advisor at a Minnesota Private Duty Home Care Conference, “Keeping Mom and Dad at Home”. During the conference attendees were encouraged to plan the future as they would a trip, looking at what would they put in their suitcase for the journey of aging and be prepared for what isn’t known to happen along the way.

Conference attendees reviewed what is known about seniors and their families. We looked at what is known about seniors:

  • They underestimate their situations
  • They don’t want to worry or be a burden to their children
  • So seniors don’t tell their children what’s going on
  • They want their families help
  • Families often don’t have the time or the financial means to help
  • Role reversal is uncomfortable
  • They are fearful of nursing homes and moving
  • 93% say they want to stay in their home

Then we looked at what we know about the families of seniors:

  • They want to help
  • They are busy; they are the sandwich generation dealing with their own family, careers, life
  • They see changes but don’t know what they mean or what the warning signs are
  • They may become frustrated with their parents denials
  • Role reversal is uncomfortable
  • It’s generally women who are doing the caregiving.

Consider what’s important to the seniors, what do they want for their journey? It’s important to involve the seniors in the process, the plan, and have them agree with the plan. Discuss their wishes along with what you think is needed. What will provide them their security, independence, dignity and control of their life? Including a mediator and/or trusted advisor is a good idea. If they are resistant to bringing someone else in, discussing their options, or accepting outside help, tell them that they may not need this but that you do.

By being educated and having your plan in place if a crisis occurs means more options will be available along with decreased costs. Being reactive at a time of crisis means less options are available along with greater costs. Emotional and reactive decisions make for poor choices and actions made from regret and guilt.

Part of the education and planning means getting the facts. Unfortunately we have been conditioned to think that seniors will end up in a nursing home; that an assisted living facility provides all the care needed; that home care is short-term and the nursing home and/or assisted living is safer than being at home.

We need to recondition our thinking:Receive home care

  • Seniors can live at home indefinitely
  • Home care can provide a nursing level of care at home
  • Living at home can be safer; you receive a 1 to 1 ratio of care versus 1.5 or more of care per person
  • Living at home is affordable

Let’s compare the costs of some options:

Home Care 1 $1,404/month 3-hour visits, 4 days a week, $27/hour
Home Care 2 $3,276/month 4-hour visits, 7 days a week, $27/hour
Home Care 3 $4,914/month 6-hour visits, 7 days a week, $27/hour
Home Care 4 $8,500/month 24-hour or live in care, one-on-one care, $275/day; includes a live in caregiver and frequent visits from a RN
Assisted Living Rent $3,585/1-bedroom/month Care packages range from $300 – $2,700; additional care would be charged per hour by a home care agency
Assisted Living Rent  & Home Care 1 $4,989/month One bedroom apartment rent plus additional care at 3-hour visits, 4 days a week, $27/hour from home care agency
Assisted Living Rent & Home Care 2 $6,861/month One bedroom apartment rent plus additional care at 4-hour visits, 7 days a week, $27/hour from home care agency
Assisted Living Rent & Home Care 3 $8,499/month One bedroom apartment rent plus additional care at 6-hour visits, 7 days a week, $27/hour from home care agency
Nursing Home $8,000 – $12,000/month Single or double room, level of care and facility amenities

This information and these home care and senior housing figures are a compilation provided by the home care agencies; are approximations and can vary by company and geographic area. Additional home care and senior housing costs were obtained from Genworth Financial, Inc. Cost of Care Survey.

Living in assisted living vs staying at home with a reverse mortgage:

  Selling Staying in home with a Reverse Mortgage
Details: Home Value $200,000; 80 year old borrower   (reverse mortgage funds available will depend on age, generally the older one is more funds available and the program chosen)
Third Party Closing Costs $1,811 $1,811
Less Real Estate Agent/RM Origination Fee & FHA Mortgage Insurance Premium $12,000 (6%) $8,000 (2% origination + 2% FHA MIP)
Net Proceeds $186,119 $102,788 in line of credit; $673 a month tenure-for life of the term of the loan and abiding by the terms of the loan; or term draws structured as needed (based on rates of 2/6/2018; rates change weekly.

Receiving care while remaining at homeNow let’s take the net proceeds and compare living in an Assisted Living to living at home and receiving home care.

Selling and Living in an Assisted Living1 Living at Home using a Reverse Mortgage2
$186,119 ÷ $3,585 (rent only) = $43,020/year or 4 years 4 months

 

 

 

 

 

No remaining equity from home.

No rent or mortgage payment as long as you live in the home as your primary residence

The tenure draw of $673 would cover property charges

Borrower is still responsible for household maintenance, i.e., taxes, insurance, utilities and stay in your home as long as primary residence (i.e., approximately $585/month for a $200,000 home)

May have retained equity depending on how long you stay in the home and the home appreciation.  The loan is non-recourse.

$186,119 ÷ $4,989 (rent and Home Care) = $59, 868/year or 3 years 1 months

No remaining equity from home.

Roof over head; funds to cover home care 1 with term draws from RM = 5 years 4 months3

Additionally it is likely that there would still be retained equity in the home after the 5.3 years.  (Based on 4% appreciation $99,318 in equity would be remaining.)

$186,119 ÷ $6,861 (rent and Home Care 2) = $82,332/year or 2 years 3 months

 

No remaining equity from home.

Roof over head; funds to cover Home Care 2 with term draws from RM = 3 years 4 months3

Additionally it is likely that there would still be retained equity in the home after the 3.33 years.  (Based on 4% appreciation $93,098 in equity would be remaining.)

Then where will you go?

 

 

Some assisted living will accept Medical Assistance or other public programs such as Elderly Waiver, however, your choices may be less.

You can stay in your home and have a roof over your head without rent or mortgage payment even after funds from a reverse mortgage are used.

Medical Assistance or other public programs such as Elderly Waiver or Alternative Care can be received even with a reverse mortgage.  Reverse mortgage does not impact receiving Medicare or Social Security.

1These rates do not take into consideration rent increases (3%-4% annual according to Genworth Financial, Inc.); it’s likely that the number of years the net proceeds would cover will be less.
2With the reverse mortgage there is a growth rate factor that is passed along to the borrower.
3This time can be extended if you are receiving Medical Assistance or other public programs such as Elder Waiver or qualify for Medicare covered Home Care.

You have option to remain at homeYou have choices and can have control over where want to live and the care you receive. You have the right to say, I want to stay in my home (or keep my parents in their home). When educated and with a plan for the journey, life will be easier.

If you’d like to remain at home and have funds for financing your home care, 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-1Ou

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.

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.

Solving The Reverse Mortgage Puzzle For You

Solving Reverse Mortgage PuzzleI’ve always loved doing puzzles and problem solving whether doing jig saw puzzles or finding resources and solutions to various issues.  Much of this led me to the reverse mortgage industry back in 1999.  Unfortunately, I come across many who still find the reverse mortgage puzzling.  So let me help solve this puzzle for you.

We assisted solving Marion’s puzzle.  Recently widowed, Marion’s income changed because with the passing of her husband she was now only receiving one Social Security check.  Having recently moved to a new home, she did the reverse mortgage to do some updates on her home and improve her cash flow into her future retirement years.

The majority of seniors want to remain in home.  Depending on report, it’s somewhere between 80% and 90+%.  A reverse mortgage is an option to help them remain in their home and have improved cash flow for current or future needs.

A reverse mortgage is a mortgage like any other mortgage where borrowers retain title and borrow against their home equity, but the reverse mortgage offers special terms for seniors home owners 62 and older.

The Home Equity Conversion Mortgage, or HECM, is the most common reverse mortgage and only one available in Minnesota.  The HECM was first insured by FHA in 1989 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.

To determine the Principal Limit or the maximum funds available at closing, HUD’s formula is the age of the youngest borrower or non-borrowing spouse, the Expected Interest Rate, the program chosen and the lower of the home value or FHA Lending Limit, currently $636,150, or in the case of a home purchase or home purchased in the last 12 months, the lower of the appraised value or purchase price.

Borrowers must meet HUD’s Financial Assessment requirements to qualify which means we obtain documentation demonstrating their ability and willingness to pay property taxes and insurance into the future.  In some circumstances a Life Expectancy Set Aside (LESA) may be required to cover the property taxes and insurance.

The net amount available is based on the Principal Limit, less closing costs, paying off any mortgages, liens and/or judgements, and the LESA if required.

If all available funds are used to pay off current mortgages or liens, the borrower’s cash flow will still improve because the monthly mortgage payment is eliminated.

Unlike other mortgages, an advantage for seniors is with the reverse mortgage there are no monthly payment requirements although borrowers are responsible for paying property taxes and insurance.  While monthly payments aren’t required, one can make a payment or payments when and how much they choose.

The interest rate depends on the program chosen and is either adjustable or fixed.  While an adjustable rate often scares people, that is because on a conventional mortgage if the interest goes up, so does one’s payment.  With the reverse mortgage, because monthly mortgage payments are not required, this is not a factor.  It only impacts the amount that needs to be repaid when the loan is due and payable.

Offering more flexibility with the Adjustable Rate option, the funds available can be received in a lump sum, monthly payments, a line of credit or a combination of these.  The monthly payments can be structured as one needs (term) or for life as long as the home is the primary residence (tenure).  Funds in the line of credit grow so more funds can be available in the future.  The line of credit growth rate is a feature that makes the reverse mortgage a tool for financial and long term care planning.

The fixed rate option requires funds to be pulled only as a lump sum draw.  The draw amount is limited to the 60% of the Principal Limit (an additional 10% is available in some circumstances).

Because the closing costs are up-front, they are often perceived as high.  On conventional mortgages people usually focus on the payment and interest rate, not really looking at the closing costs so they don’t realize the costs are comparable.  However, reverse mortgage closing fees are comparable to the traditional closing costs of a conventional loan including an origination fee, appraisal, title fees, title insurance and recording fees.  As a Federal Housing Administration (FHA) insured loan, with the HECM borrowers also pay the FHA Mortgage Insurance Premium (MIP).

The FHA MIP offer significant benefits for reverse mortgage lenders, investors, as well as the borrowers.

  • 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.  Insured by HUD, HECMs are still available even if something happens to the lender.
  • 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.

When the loan becomes due and payable, generally when the borrowers pass away, sell or move, the repayment amount is the lesser of the loan balance or fair market value of the home.  If there is remaining equity, it goes to the borrowers or their heirs.  As a non-recourse loan there is no personal liability to the borrowers or their estate for repayment.  If an heir wants to keep the home, they can do so by paying off the reverse mortgage loan balance.

Lee who had some credit card debt, and while still working and having some retirement accounts he needed improved cash flow and didn’t want to tap the retirement accounts.  Doing the reverse mortgage allowed him to access cash to pay his credit card debt and do some home improvements.  It also meant he didn’t have to pull funds from his retirement accounts, but leave those for the future, maybe even being able to leave his heirs some funds.  And with the reverse mortgage line of credit, when he does retire, he’ll still have some funds available to replace his income.

Sometimes there are situations that pose puzzles during the process that I face in order to be able to do the loan for borrowers.  Through my experience and knowledge of the product and industry along with my problem solving skills, I work hard to solve the puzzle and will do so if at all possible.

Another puzzle we helped solve was for Marilyn.  During the probate of her mother’s estate, Marilyn wanted to keep the family home.  Sorting through the process of the probate and transferring the home’s title to Marilyn, the reverse mortgage provided the funds to pay her siblings their shares of the estate so she could keep the home and live there as her primary residence.

Reverse Mortgage Puzzle SolvedIf you’d like to improve your retirement cash flow now or for the future and want to solve the reverse mortgage puzzle, 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-1wA

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.

Senior Homeowners Benefit from Reverse Mortgages

Senior Homeowners Benefit From Reverse MortgagesAre you looking for some funds to supplement your retirement?  Do you need to modify your home to meet your needs?  Are you looking for a way to pay for the home health care you need now or may need in the future?  Do you have a mortgage and find making the payments is a struggle?  Or maybe you want to continue making your trip south during the winter but funds are short to do so.  Are you considering downsizing to move closer to family or want to have a home more suitable to your current lifestyle?

A Home Equity Conversion Mortgage (HECM)  reverse mortgage may be your answer.  A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older.  Similar to a conventional loan, you continue to own the home.

With the flexibility of making payments toward the loan balance, or NOT making a mortgage payment at all, the HECM reverse mortgage could provide the cash for your immediate needs or future needs. (Borrowers are still responsible for paying property taxes, hazard insurance and maintenance of the home.)

It also offers more flexibility on how you can receive the funds including monthly payments, line of credit, lump sum or a combination of these versus a lump sum with a conventional mortgage.

An additional benefit is funds left in the line of credit grow so more funds become available over time…a great advantage over a HELOC and a great tool for long-term care planning.

There are no limitations on how you spend the funds.  Look at ways the reverse mortgage benefited some seniors:

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.

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.

Don't Rely on ChildrenNot 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 her 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.

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.  Providing them more freedom and control of their life during retirement.

Line of Credit for future needs:  Janice did the reverse mortgage just for the purpose of having a line of credit to draw on in the future when needs arise.  Because the funds in the line of credit grow more funds become available in the future.  With the line of credit available to her when she needs car repairs, or even a new car, or to cover medical expenses or long term care needs she will have funds in her line of credit to cover these needs.

Purchase a New Home:  Mike and Carol wanted to purchase a new home that fit their needs of a one-level so they used the reverse mortgage rather than a conventional mortgage to finance their new home.  This meant they didn’t have monthly mortgage payments to make and provides them a better cash flow during their retirement years.

The loan becomes due and payable when the home is no longer the primary residence of the borrowers or on their 150th birthday.  Another difference and benefit of the reverse mortgage over a traditional mortgage is that the reverse mortgages are non-recourse loans.  This means there is no personal liability if the loan balance is higher than what the home can be sold, it is paid only from the fair market value of the home.  If the home is sold for more than the loan balance then the borrower(s) or their heirs keep the difference.

As with any mortgage loan there are closing costs.  The closing costs of the reverse mortgage are comparable to a conventional mortgage.  They include the origination fee, appraisal, title and settlement and recording fees.  With the FHA HECM reverse mortgage HUD’s regulations state that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing fees.

As a FHA loan the fees include the FHA Mortgage Insurance Premium – this would be the same if they are doing a Forward FHA loan.  When comparing closing costs side by side to a conventional loan the difference is the up-front FHA Mortgage Insurance Premium.  The benefits of FHA insuring the loan include guaranteed funds, a lower interest and the loan being non-recourse as well as regulating the fees.  “Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs” provides a side-by-side comparison.

When considering whether to do a conventional mortgage, a HELOC or a reverse mortgage you must consider if you can even qualify for a conventional mortgage or HELOC; then if you or your spouse can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments?  Would you be stressed trying to pay living expenses, medical bills, or would you be facing foreclosure? Or could you qualify for the reverse mortgage and have enough funds to pay off your current mortgage?

Will the reverse mortgage be the answer to your financial retirement needs?  Explore the option, get the facts, know what to look for in an originator. You might find it will benefit you as it has benefited hundreds of thousands of other seniors.

Meet Reverse Mortgage Originator in personFor 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.

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.

© 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-1rv

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.