Are 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.
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 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.
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.
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
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Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.
This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.