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.

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.

Giving Thanks For The Opportunity To Make A Difference

Happy ThanksgivingIt’s Thanksgiving and the season to reflect and give thanks.  I want to take this opportunity to say I’m grateful for all who are in or have been in my life and have touched it in one way or another.  I’m grateful for the talents God gave me and my parents taught me to use.  And I’m thankful that I have the opportunity to use those talents to assist others and make a difference in their lives.

It’s rewarding to have my reverse mortgage borrowers call and say how much the reverse mortgage has made in their life, for themselves as well as their families.  It is because of you, the customer, that I have the opportunity to serve.

This poem is hanging on my office wall as a wonderful reminder it’s because of YOU

Because the Customer

Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!

Anonymous

Thank you to my reverse mortgage borrowers, my referral sources, my vendors, my networks and all who help make a difference in the lives of seniors.  It is because of YOU I exist and am so rewarded.

May you have a Happy and Blessed Thanksgiving!

Beth Paterson, CRMP
Certified Reverse Mortgage Professional
NMLS #352859

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

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.

Basics of Reverse Mortgages You Need to Know

Home Equity Conversion Mortgage BasicsThe 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.

A mortgage like any other mortgage where borrowers retain title and borrow against their home equity, the reverse mortgage offers special terms for seniors home owners 62 and older.  One 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 Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, currently $636,150, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen.  Doing the reverse mortgage at a younger age may still be more beneficial than waiting until one is older.

To qualify borrowers must meet a 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 (LESA) may be required to cover the property taxes and insurance.

Reverse Mortgage BasicsWith 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 or for life as long as the home is the primary residence.  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.

A fixed rate option is available however only the lump sum draw is available and the draw amount is limited to the 60% of the Principal Limit (an additional 10% is available in some circumstances).

With a reverse mortgage you hold the keys and titleThe borrowers keep the title to the home and are responsible for property taxes, insurance, and maintaining the home.  Unlike a conventional loan the interest accrues, increasing the balance with no mortgage payments due until the home is no longer the primary residence of the borrower(s) or if one has broken the terms of the loan, i.e. didn’t pay property taxes.

Because the closing costs are up-front, they are often perceived as high and often scare people away.  However, the 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 FHA insured loan, with the HECM borrowers also pay the FHA Mortgage Insurance Premium (MIP).

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.

Generally the funds are tax-free but one should consult with their tax advisor for their specific situation.

One can have a trust, life estate, or receive Medicaid (Medical Assistance in Minnesota), Elderly Waiver or other public benefits.*  In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home and the loan isn’t due until both borrowers are no longer in the home as their primary residence.  Not considered income, Social Security and Medicare are not affected.  *Check with legal advisor for your situation.

Eligible non-borrowing spouses may be able to remain in the home if they meet certain qualifying attributes.  Talk with your local originator and/or HUD approved reverse mortgage counselor for details.

With no limitations on how the funds can be used, through the years hundreds of thousands of seniors have benefitted from the reverse mortgage allowing them to stay in their home and have security, independence, dignity and control.

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.

© 2016-2017 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-1nZ

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.

Want Independence? Explore A Reverse Mortgage.

What gives you a sense of independence?  When I think of independence I think of having freedom of choices and not relying on others.  We all want our independence including seniors.  How can seniors  maintain that independence, have freedom of choices and not rely on others, the government or their children?  A reverse mortgage provides independence for home owners 62 and older.

Having one’s own funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever is desired can give that feeling of independence.  Being able to pay off a mortgage to improve cash flow to to save one’s home from foreclosure gives one relief and freedoms.  Being able to plan and have funds for the future and long-term care needs as well as protecting other assets and/or delaying taking out Social Security are other ways to have independence.

While some assistance may be needed for seniors to remain in their home, not relying on children or the government for help and being able to choose a home care agency of their choice will give them the sense of independence.  Using the equity in one’s one with a reverse mortgage can provide seniors the funds for their independence.

“Now I have my dignity back and my independence” was what Edna exclaimed after her reverse mortgage was closed.

Another Minnesota reverse mortgage borrower, Bea, said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure.  Being free from monetary anxiety, you have better control over spending your equity.”  The reverse mortgage allowed Bea to pay off a mortgage, then to travel to family weddings and reunions.  Several years after she initially did her reverse mortgage more recently Bea is using her reverse mortgage funds to pay for home care that is needed to keep her independent and at home.

Ted, age 91 and Anna age 87, Minnesota homeowners, were proud and didn’t want to discuss their financial situation.  However, their son-in-law finally talked to them about doing a reverse mortgage.  When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor.  Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture.  The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.”  When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal.

Then one day  Anna and her daughter were sitting at the kitchen table and Anna shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security.  As they were sitting there and looking at the paper, Anna exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation initially and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires.  This also improved their dignity.

A reverse mortgage insured by FHA, an agency within HUD,  is known as a Home Equity Conversion Mortgage or HECM.  As one of the most protected financial options available for seniors, it allows them to use the equity in their home for whatever they need or want.  With no monthly mortgage payments, cash flow can be improved by receiving money in monthly payments, a line of credit, lump sum or a combination of these.  (Borrowers are still responsible for paying their property taxes and hazard insurance and maintaining the home.)

The title remains in the borrower’s name and the loan is not due until the home is no longer the primary residence, when they die, sell or move or on their 150th birthday. Repaid from the sale of the property, as a non-recourse loan if the loan balance is higher than what the home can be sold at fair market value the borrower or their heirs are not responsible for the difference.  If the home is sold for more than the amount due then the borrower or their heirs keep the difference. 

As you bring out the red, white and blue, hang your flags and MN Reverse Mortgage Borrower Has Independencegather with family to celebrate the independence of this great country of ours, ask what independence means to your loved ones.  What is needed to help them remain independent and in their home, not relying on the government or on you, their children.   Then explore a reverse mortgage, get the facts about them, and see if it might be an option for their situation to maintain their independence.  Happy Independence Day!

© 2011-2016 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-1my

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.

What You Need To Know When A Reverse Mortgage is Due and Payable – Respond Quickly

Reverse Mortgages provide benefits for homeowners 62 and older

A reverse mortgage can be very beneficial to homeowners who are 62 or older, giving them the opportunity to live in their home with improved cash flow and with no monthly payment (they are still responsible for property taxes, hazard insurance, maintenance, as well as flood insurance and HOA dues if applicable).  During the term of the loan borrowers use their proceeds for everyday living expenses, retirement planning, long term care, purchasing a new home, fulfilling dreams and wishes and needs of retirement.

Unlike a traditional mortgage, the loan is not due until the borrower is no longer in their home as their primary residence.  The due date on the mortgage is actually the 150th birthday of the youngest borrower.  Of course this all depends on the terms of the loan being followed.  As a non-recourse loan there is no personal liability, the loan is only repaid from the property, not from other assets.  If the home is sold for more than the loan balance the borrower or estate keeps the difference.

The reverse mortgage does not automatically become property of the lender or bank nor do they automatically start foreclosure.  Foreclosure is the last resort HUD and the loan servicers want to take.

One of the more common questions we as loan originators get is, “How long do I or my children have to pay off the reverse mortgage?”  So what happens when the borrowers are no longer in their home?

Obviously it is nearly impossible to repay the loan the day it becomes due (the date of death or moving out of the home or not abiding by the terms).  But there are some important details that need to be addressed right away.  HUD has some pretty tight requirements the lender’s servicers must follow when it comes to satisfying the reverse mortgage repayment.  (Not always the same as the lender, servicers are companies lenders contract with to handle the servicing of the loan.  These are the companies who have mailed the monthly statements, release the line of credit funds or monthly payments, etc. during the term of the loan.)

Communication, communication, communication and more communication with the servicer is of the utmost important when a reverse mortgage borrower is no longer in their home.   The borrower or their estate must move quickly in contacting the servicer so they can make use of the maximum time that can be allowed by HUD for satisfying the loan. And it must happen quickly after one is no longer in their home.

Following is an outline of the steps that must be taken when the reverse mortgage becomes due and payable.

  • Call Servicer right awayThe servicer must be notified within the 1st 30 days of the borrower being out of the home by death or moving, etc.  Note it is based on the actual date of death or move out date, it is not based on the date the servicer is notified.  This can be done over the phone followed up with written documentation.
  • Condolence/demand letter mailed from the servicer.  This letter may seem harsh and insensitive but the wording is required to stress the importance of the loan being due and the time frames required to satisfy the loan.
  • Options are provided to satisfy the loan:
    • Paying it off via sale of the home to a third party.
    • A family member finding financing if they choose to keep the home.
    • If it looks like the home value is less than the loan balance, contact the servicer to make arrangements to pay the loan at 95% of the appraised value.  The servicer will order an FHA appraisal within 30 days.
      • The borrower or estate must be prepared for this and allow this by providing a contact to allow an appraiser access to the home.  With the full appraisal, it can be used for a short-sale.  If a full appraisal is not completed and they only do a “drive-by” one, another appraisal will have to be obtained for the short-sale.
    • The borrower or the estate has the option to do a Deed In Lieu of Foreclosure.  This is taking all personal property and “broom sweeping,” cleaning out debris and trash from the property then turn the marketable title over to the servicer.
    • Walking away and allowing the lender to foreclose.
  • Within 30 days of receipt of the demand letter borrowers or their estate must respond to the letter and return a written “intent to satisfy the loan” document.
  • Within 60 days the servicer must receive copies of death certificate; copies of probate proceedings, appointment of executor, administrator or personal representative of the borrower’s estate; copies of the trust, Life Estate or Transfer on Death Deed if applicable.
  • Within 60 days the home has to be on the market documenting the intention of satisfying the loan.  This documentation must be sent to the servicer immediately.
  • If intention is to not sell the home, documentation of financing to pay off the loan must be provided within 60 days.

IT IS IMPORTANT TO PROVIDE AND DOCUMENT THE INTENTION OF SATISFYING THE LOAN QUICKLY!

If the communication with the servicer is happening and necessary documentation is provided to the servicer in their time lines then the borrower or their estate are provided 6 months to satisfy the loan.  It may be possible to receive up to two 3-month extensions.  But this is where the communication is important.  One must NOT assume they have this time.  If the servicer does not receive the communication and documentation according to their time lines, they will start the foreclosure proceedings according to HUD’s requirements.

And what happens if one doesn’t notify the servicer or follow these time lines?  

If one doesn’t notify the servicer or follow these times lines then a letter of demand will be resent.  If no response to the demand letter is received the servicer will refer to an attorney to start foreclosure to collect the debt.  The 1st action to start the foreclosure will begin within 180 days by the foreclosure attorney.

If the last surviving borrower passes and the servicer is not notified within 30 days of the death, a notice of foreclosure is sent and attorney contacted.  The more time that passes the less time the estate has to satisfy the loan and avoid foreclosure.

Foreclosure of the reverse mortgage follows the laws of each state.  There may be time to satisfy the loan even after the foreclosure has started however extra fees will be added to the loan balance.

Borrowers’ Responsibilities

Paying taxes, keeping hazard insurance on the property and if applicable, flood insurance, maintaining the property and not changing title are all borrower’s responsibilities under the terms of the loan.

Borrowers are responsible for providing the following information to servicers:

  • Complete required repairs according to timeline outlined at closing.
    Responding to and returning the letters of occupancy that are mailed to borrowers on the anniversary of their reverse mortgage closing.
  • Providing proof that property taxes have been currently paid on an annual basis.
  • Changes to any of your insurances with the updated information, i.e. if you change from one insurance company to another letting them know who the new provider is.
  • If you are out of the home for extended period of times, i.e. for hospital or rehab stays or long term travel.

Open your Mail from reverse mortgage lender/servicerBe sure to timely open and review mail from lenders and servicers to ensure you are taking care of your responsibilities and responding to their communications.

If the servicer does not receive this information they will make attempts to obtain it.  If they are unsuccessful in obtaining it they are required to notify HUD who will likely require the foreclosure process begin to meet their deadlines.

Default for Not Paying Property Taxes, Insurance, Abiding by Terms of Loan

If the loan has become due and payable due to lack of payment of taxes and/or insurance or not occupying the property according to the terms of the loan, HUD has the right to foreclose on the property.  And this may happen!  When this does happen, the borrowers are not losing their home due to the reverse mortgage but because they didn’t abide by the terms of the loan.  If one doesn’t pay property taxes the county can, and does, foreclose whether there is a traditional mortgage, reverse mortgage or no mortgage.

When one is in default due to one of the terms of the loan not being adhered to the demand letter for repayment is sent.  There may be options to cure the default so one should reach out to their servicer to see if they can qualify for one of these.

If an arrangement cannot be made to cure the default, the foreclosure process may begin and an attorney contacted.

Servicers Check Public Records

The servicers are regularly checking public records and will send the demand letter for repayment if they learn the last surviving borrower is no longer in the home or a borrower hasn’t paid property taxes, kept insurance on the home or maintained the property.

Funds Frozen

Once a loan payoff is requested the funds from one’s line of credit and/or monthly payments will be frozen.  If you, the borrower, are thinking funds will be needed for the move, fixing the home for sale, etc. make sure funds are requested prior to the move and payoff request.  The heirs, because they are not borrowers, cannot request funds.

Responsibilities continue

Until the loan is actually paid off, the borrowers or the estate are responsible for maintaining the property, paying property taxes, utilities, maintaining hazard insurance, flood insurance if applicable, on the property, etc.  Interest and the FHA Mortgage Insurance Premium will accrue as well as a servicing fee if one was on the loan.

Keep reverse mortgage information with other important documents

I strongly encourage you to have your reverse mortgage information, lender, servicer contact information with your other important documentation so your estate can notify the servicer timely.  Remember if the servicer is not notified timely and communication not continued, they are missing opportunities to have the time to satisfy the loan.

Some borrowers choose not to tell their children they are doing or have done a reverse mortgage.  This is their right.  Doing a reverse mortgage is their own personal financial decision.  If this is your choice it is even more important to have your reverse mortgage information with your other important documents so they have the opportunity to respond timely.

Non-borrowing Spouse

This article does not address non-borrowing spouse situation.  If you are a non-borrowing spouse and the borrowing spouse has passed, contact the servicer immediately.  HUD has made provisions for non-borrowing spouses to possibly remain in the home but the servicer must be contacted immediately and additional documentation must be provided to determine one will qualify for this option.

I’m here to assistance my borrowers

I, as a broker and loan originator, do not have access to the servicing information, however I am available even after the loan has closed to answer borrower’s questions and guide them through the process.  I welcome the opportunity to guide and advise my borrowers on the steps they need to take and referring them to the servicer timely.  Other reverse mortgage brokers also welcome the calls so while you ultimately need to talk with the servicer, don’t hesitate to reach out to your broker loan originator for some guidance.

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

Thanks to Ryan LaRose from Celink for assistance by providing information.

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-1kJ

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.

Reverse Mortgage Assists to Cover Expenses and Protect Assets

Reverse Mortgage provides funds for retirementHome owners sometimes find themselves tapping their retirement funds or assets to cover their monthly expenses. And when “life happens” such as medical expenses or other emergencies they find themselves drawing even more money from their accounts. A reverse mortgage is an option to protect their retirement funds yet have the funds for their everyday living, maintaining their lifestyle or emergencies.

Ron, a recent borrower stated, “Initially we did the reverse mortgage to buy hearing aids and for the longer-run to have funds for ‘emergencies’ without having to use investment funds.”

After the passing of his wife, Darrel found he was drawing funds regularly from his retirement funds for his living expenses and other needs. He chose to do the reverse mortgage so he wouldn’t have to keep drawing from those accounts and paying the penalties that came with it. The addition of $300 tenure payment and $15,000 in his line of credit means he can leave the retirement funds to grow.

Dorothy joined me for a presentation to other seniors, sharing why she did the reverse mortgage. “I have lived in my home for many years.  I ‘knew’ Social Security was going to take care of me… my mother had gotten by on it and I figured I would too.

Reverse Mortgage Works Wonders for MN womanI retired at 65.  I had no hospitalization or a pension when I retired.  I didn’t face those facts right away.  I had invested and purchased stocks over the years in modest amounts.  I figured that would be my answer to any and everything.  When I wanted to travel I just cashed in part of a stock and I took off and did some great fun things.

“However we know the stock market took a plunge a couple of times and what I had was back down to half or less than what I had built up.  Also I was having to use this in addition to my Social Security income.  Fortunately I was able to have paid off my mortgage by the time I retired so I didn’t have those payments.  I thought it would be easy street.

“I had a house paid for and was able to get a line of credit from the bank.  Anything I wanted to do I would I just borrow the money on the line of credit.  After that climbed I would cash some stock in to pay the line of credit.

“Pretty soon I needed a car.  I took out a loan on the car. Pretty soon I’m paying the line of credit and the car payment.  And I was using up my stock portfolio.  I was owing more to the bank than I had stock to pay off all this line of credit.  The stock broker I was talking with said, you have your house paid for, the best thing I could do would be to get a reverse mortgage.

“I have my reverse mortgage.  I decided that as long as I was getting my Social Security and didn’t have to touch my stock, I wanted a reverse mortgage line of credit. My reverse mortgage line of credit would grow at nice increments – it was growing faster than my stock portfolio was growing.  I also decided to take a minimal monthly payment.

“The reverse mortgage has given me a great feeling of security.  I don’t have to touch my stock.  My line of credit is going up every month as long as there are funds there.  It’s much better than CDs.

“I’ve done home repairs, replaced my car and taken some funds to get my driveway repaired.  My yard needed some attention that I had overlooked because I didn’t want to spend the money.  So I’ve taken some funds for that too.  I still have a nice sum in my line of credit and I haven’t had to use my stock.

“I watch the market go up and down and it’s not life and death like it had been before when I knew I just had that stock and when it was gone then what would I do.

“It’s worked wonders for me.  I’ve been able to take trips with the money, repair my house, re-roof it, and do this and that.  It’s given me ease of mind and it’s certainly helped my kids because at one point I think they thought they would have to help me financially and they weren’t looking forward to that.  Now that worry is off their mind.  So as long as I can, I will stay in my home, and that’s what I plan to do.”

Nine years after her closing she’s still in her home benefiting from her reverse mortgage.

© 2015 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: http://wp.me/p4EUZQ-1f3

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.

“Because The Customer” We Give Thanks

Giving Thanks Because of Our Reverse Mortgage Borrowers (c) 2008 Beth PatersonMy reverse mortgage borrowers often call to say “Thank you!” for helping them obtain their reverse mortgage.  They proceed to tell me what a difference it has made in their lives as well as for their families.  I always appreciate hearing from them as well as hearing their stories.

I also receive comments and notes of appreciation from others who work with seniors, my referral sources, the vendors who we need to do a reverse mortgage and operate our business, and those in my networks.

For me it goes beyond receiving the thank you’s from others.  I too have to say “Thank you!”  Thank you to my reverse mortgage borrowers and all I work with for the opportunity I have to serve.  I am rewarded to be able to assist in making a difference in the lives of seniors.  I  recognize that it is because of you I have this opportunity to serve and I feel blessed to be able to do so.

Many years ago I found the following poem on a restaurant place mat.  I don’t know who wrote it but I did copy it down and have it hanging on my office wall… a wonderful reminder.

Because the Customer

Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!

Thank you to my reverse mortgage borrowers, my referral sources, my vendors, my networks and all who help make a difference in the lives of seniors.  It is because of YOU I exist and am so rewarded.

May you find reasons to give thanks for the blessings in your lives this Thanksgiving day and every day.

© 2011-2015 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: http://wp.me/p4EUZQ-1fE

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.

TV Show Discusses Facts & Uses of Reverse Mortgages

Dr. David Johnson discusses Reverse MortgagesAs host of the show Savvy Senior Sources…Talking With Experts, I and my co-host, Deb Nygaard, talk with Dr. David Johnson, Associate Professor of Finance, to help people understand reverse mortgages and some of the benefits, encouraging people to get the facts from a reverse mortgage specialist before making any decisions.

“To not understand or to be misled and think it’s a bad thing is so sad because so many people could benefit from it.” says Dr. Johnson.

Tune in to watch at:  https://youtu.be/GN84e4YRF6Q

© 2015 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-1dq

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.