Reverse Mortgages Offer New Products for Better Options for Borrowers

Posted on May 22, 2014 by Beth Paterson, CRMP

Reverse Mortgage Options Change doesn’t always have a positive image but change can be a good thing as it is with the recent reverse mortgage product changes that are insured by HUD. Here is information on the reverse mortgage products available.

First let’s look at understanding the FHA/HUD Home Equity Conversion Mortgage (HECM), which is currently the most common reverse mortgage, and the only option currently available in Minnesota. It is federally insured and regulated. Lending limits are set by the Federal Housing Administration (FHA). The maximum disbursement allowed at closing cannot exceed the greater of 60% of the Principal Limit/Maximum Loan Amount or the sum of mandatory obligations (closing costs, loan and judgment payoffs, set asides, etc.) plus 10% of the Principal Limit/Maximum Loan Amount.

The up-front FHA Mortgage Insurance Premium (MIP) is .5% for initial draws of 60% or less in the 1st 12 months. If one draws more than 60% at closing or in the 1st 12 months due to mandatory obligations, the up-front MIP is 2.5%. The maximum distribution of funds allowed at closing and in the 1^st 12 months is the greater of 60% of the Principal Limit or the total of mandatory obligations plus 10% of the Principal Limit; the amount drawn cannot exceed the Principal Limit.

*Mandatory Obligations include closing costs, loan and judgment payoffs, set asides, etc.

Features on all reverse mortgage programs include:

No monthly mortgage payments however borrowers are still responsible for property taxes, hazard insurance, maintaining the home and abiding by the terms of the loan
No income or credit qualifications for the interest rate*
No personal liability, they are all non-recourse
No equity sharing or appreciation sharing
Loan is due and payable when the home is no longer the primary residence of the borrower(s)
Independent Counseling is required

Now let’s look at the various program options including the adjustable rate options and the fixed rate options as well as the HECM For Purchase.

The Adjustable Rate Program, offering the most choices on how the funds are received makes it the most versatile reverse mortgage program.

Funds available in a line of credit, monthly tenure or term payments, lump sum or a combination of these subject to HUD program limits, i.e. cannot exceed 60% in the 1st 12 months.
The available funds in the unused line of credit grow so more funds become available over time.
With the Adjustable Program, after the 1st 12 months the remaining loan proceeds become available.
One can make repayments which reduce the loan balance and then have the option to re-borrow those funds again via monthly payments or the line of credit.
The interest rate is based on the LIBOR (London Inter-Bank Offered Rate) plus a margin.

One of the features of the Adjustable Rate program is the Principal Limit Protection feature, implemented in 2006, this allows the lock of the Expected Rate index – however it does not lock the margin. Click here to learn about the Principal Limit Protection feature.

Reverse Mortgage Adjustable Rate Mortgage With the HECM Monthly Adjustable Rate program the rate can change monthly with the first rate change occurring on the 1st day of the second full month and can occur every month thereafter. There are no limits on the amount of the rate change each month. With the monthly adjustable rate there is a lifetime cap of 5 percentage points or 10 percentage points above the interest at the time of closing depending on the lender.

The HECM Annual Rate program has the same features as the Monthly Adjustable Rate although the rate adjusts annually with the first rate change occurring between 12 and 18 months from the date of closing. The rate changes thereafter must occur every 12 months. The rate cannot change more than 2 percentage points at each rate change with a lifetime cap of 5 percentage points above the initial rate at closing.

With some of the same features as the HECM Adjustable Rate program, the HECM Fixed Rate offers a fixed rate option. There is one interest rate, fixed for the term of the loan, for borrowers who are drawing 100% of their available funds up-front. With this option funds are NOT available in a line of credit or for monthly payments.

One may choose to make a payment on the fixed rate option which will reduce the loan balance however these funds are not available to re-borrower again in the future.

NOTE: While a fixed rate reverse mortgage sounds enticing, once it is understood, it may not be the best choice for a reverse mortgage unless you need all the proceeds for the mandatory obligations at time of closing.

With the Fixed Rate the interest is being accrued on all funds drawn up front when it may not be necessary to take all the funds initially. Additionally, the growth rate is not available on the funds in the line of credit on all the Fixed Rate programs. If you are doing the fixed rate, ask for the fixed program that offers the line of credit and monthly payment options for the most flexibility.

Using a reverse mortgage to purchase a home Another program of the reverse mortgage is the HECM Home Purchase Program which provides financing to those who desire to downsize, move closer to children or purchase a new home without having mortgage payments.

The steps to do so are the same as with the regular reverse mortgage. However there are some unique points for this beneficial home purchase option. If you are over 62 and purchasing a new home in Minnesota contact us to learn more about the HECM for Purchase.

While Proprietary or private Reverse Mortgage Programs are not available in Minnesota at this time there is currently one offered. These reverse mortgages are generally for seniors with higher home values and are considered jumbo loans. With much higher or unlimited lending limits, the amount of funds available to a borrower may be much greater for those with home values over $1million than other reverse mortgage programs.

One must always look at their situation, consider how the funds will be received and utilized, to determine which reverse mortgage program will work best for their circumstances. If you are located in Minnesota, contact Reverse Mortgages SIDAC for a review of all the options of reverse mortgages in Minnesota to see which option will be the best for your situation.

*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future.

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://rmsidac.com/?p=4308

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.

Memories Created for Reverse Mortgage Heirs

Posted on April 18, 2014 by sidac

On a Friday I received a call from the niece of one of my Minnesota reverse mortgage clients telling me that Bob had passed away. After extending my sympathies I answered her questions and helped her understand the process now that the loan is due. As I talked with Bob’s niece she shared how loving Bob was and how the FHA Home Equity Conversion Mortgage (HECM) reverse mortgage not only benefited him but also allowed for him to create numerous memories for the family.

During our conversation I shared some memories of my meetings and conversations with Bob and his perspective on how the reverse mortgage had made a difference in his life. Bob had called me after his trip to Yellowstone with a nephew telling me what a wonderful time he had had and how happy he was to be able to take the trip. During another conversation he had said he had remodeled his home to be adapted to be wheelchair accessible. He had also shared how much the reverse mortgage had given him his independence and the ability to remain in his home where he wanted to be with his dog. I originally shared Bob’s stories in my blog “Reverse Mortgage Helps Minnesota Senior To Be Prepared for Future.”

Apparently Bob’s wife who had proceeded him in death limited Bob from fulfilling his dreams. It appeared it had to do with not having much money but also her attitude. With the reverse mortgage he had money like he never had before. He would tell his niece, “I don’t know how it is that I have money now when I never did before.” She said he became energetic and interested in life.

The family’s perspective of the trip to Yellowstone was that it had not only been a wonderful experience for Bob, his young traveling partner had an experience of a lifetime with his uncle and has memories of the trip to treasure. I was told the expressions on their faces upon their return were smug and they were keeping secrets that will likely never be shared like “little boys” do.

Bob bought gifts for family members like a vacuum cleaner for someone who needed it but didn’t have the funds to purchase it on their own. What a good feeling it must have been for Bob to be able to help his family.

He bought tickets to take family members to movies and plays. I was told that one of those experiences was taking his niece’s family to the play “Sleeping Beauty.” As they were sitting in their seats the niece looked over and saw the pleasure in Bob’s face as he was watching the expressions on the faces of his family. What a memory to treasure! This was only one of several of these types of adventures and memories for Bob and his family. The pleasure for the family was the kids got to know an uncle and share time with him as they had not been able to previously.

Having less funds available when the loan is due and payable or less of an inheritance is a negative of the reverse mortgage. But using the funds and creating the memories by spending time together or giving the gifts and seeing the difference it makes while one is still alive can be a treasure which can never be replaced.

As his niece shared the stories I got tears in my eyes. The reverse mortgage had not only changed Bob’s life but the lives of an entire family. Just before we were hanging up, Bob’s niece said, “Thanks for loving my uncle too.”

Providing security, independence, dignity and control for our seniors is why I believe in reverse mortgages and am in this industry. It’s a blessing for me to be able to help seniors and their families. And I do love my clients and hearing their stories.

For the details and facts on reverse mortgages visit our website, www.RMSIDAC.com.

First posted in 2011, re-posting 2014
© 2011-2015 Beth Paterson, 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.

Reverse Mortgage Borrowers Remain in Control

Posted on April 9, 2014 by sidac

When sitting down with a new prospect the other day I asked what they had heard or thought about reverse mortgages. Bob responded that reverse mortgage borrowers lost control of their home and their money. Have you heard this too? I want to correct this misconception for you.

Reverse mortgage borrowers remain in control of their home. They own the home, title remains in their name, just like with any mortgage.

They have the option to paint the home the color of their choice, plant trees or landscape as they choose, and to decorate the inside as they desire (or not make changes).

I had one borrower ask if they could paint their house purple. With a chuckle I responded they could although the neighbors may not like the color purple. The point is, as the homeowner they have the option to choose what color they want to paint their house.

Borrowers are, however, responsible for maintaining the home. This is to the homeowners best interest anyway, and whether they have a reverse mortgage, a conventional mortgage or no mortgage at all. Maintaining means things like no bare wood or chipped paint, roof replaced when needed, foundation and structure is sound, electrical and plumbing in working order.

In their will or trust the reverse mortgage borrowers still choose who will inherit the home or equity of the home.

While the reverse mortgage borrowers will be using the proceeds for their needs or wants during the term of the loan, when the home is no longer their primary residence, the loan is due and payable. The loan is generally paid back from the sale of the home with no personal liability to the borrower or their heirs. If the home is sold for more than the loan balance the borrower or the heirs receive the difference.

If an heir wants to keep the home, they have this option – they would just need to pay off the reverse mortgage balance. This can be done through a conventional mortgage, their own funds or if they were the beneficiary on an insurance policy.

Note that if the loan balance is higher than the fair market value, the borrower or their heirs only need to pay 95% of the fair market value of the home, they do not need to come up with the difference. With the FHA HUD insured Home Equity Conversion Mortgage (HECM) the FHA Mortgage Insurance will cover the difference for the lenders.

They have the option to sell when they want and choose the real estate agent. If they have passed away then their estate chooses the real estate agent.

The way one wants to receive their reverse mortgage proceeds is also their choice. They can receive the funds in a line of credit, monthly payments, lump sum or a combination of these.

And how they use these funds is in their control – lenders cannot dictate how one spends the proceeds from their reverse mortgage. Borrowers can and have used their reverse mortgage funds to pay for home repairs, purchasing a new car, traveling, home care or whatever one needs or wants… it’s their choice.

The reverse mortgage provides control for borrowers to have funds so they can make their own choices. For example, where they want to live (in their own home vs government subsidized housing), who they want to care for them (vs the government deciding which home care agency they can use).

Reverse mortgage borrowers do remain responsible for paying their property taxes, having home owners insurance, maintaining the property and paying home owner association dues if applicable, just as they do with or without a conventional mortgage.

Losing control of your home or money with a reverse mortgage is a misconception. In reality reverse mortgage borrowers have control and in some cases even more control than without doing a reverse mortgage; having funds available gives them more choices and options.

Originally Posted in 2011; Re-posted in 2014
© 2011-2014 Beth Paterson, 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.

Think you don’t need a reverse mortgage? Think again… Maybe you’ll WANT one.

Posted on February 23, 2014 by sidac

I sometimes have people say to me they don’t need a reverse mortgage. Have you said or thought this? Have you thought a reverse mortgage should be a last resort or one should wait until they are older before doing one? Let’s explore how a reverse mortgage can help you with your retirement planning and long term care planning needs. And why doing a reverse mortgage now rather than later may be to your advantage. You might then decide you want one.

A reverse mortgage is a mortgage like any other mortgage, using the equity in one’s home, but has special terms for homeowners 62 and over. There are no income or credit score qualifications for the interest rate and no monthly mortgage payments required. Homeowners maintain the title; the reverse mortgage lender does not own the home. Borrowers are responsible for paying their property taxes and insurance as well as maintaining the home. Reverse mortgage borrowers are highly protected – more so than with any other loan.

The Loan Amount, referred to as the Principal Limit, of the HUD insured Home Equity Conversion Mortgage (HECM) reverse mortgage is based on the age of the youngest borrower, the lesser of the home value or FHA Lending Limit, the program chosen and the Expected Interest Rate. HUD allows certain types of properties to qualify: single family homes, duplexes or 1 to 4 unit properties as long as the home owner is living in one of the units, townhomes, FHA approved condos, and manufactured homes that meet HUD’s requirements.

Let’s compare doing a reverse mortgage now to waiting before doing your reverse mortgage.

	TODAY	10 Years from Now	Barb wrote: “Having a Reverse Mortgage has given me monetary independence and I never realized how important having cash available would be until I fell in October 2013 and broke my right shoulder. Without the Reverse Mortgage money I would have been ‘up a creek without a paddle’. Financial independence saved the day.”
AGE	63	73
HOME VALUE	$200,000	$263,000 (based on Moody’s Analytics Factors)
AVAILABLE (Approximate net after fees)	$92,729	$130,626*
Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1^st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%. The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan. Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%. Actual Line of Credit Grows based on current interest rate plus 1.25%. So if interest rate is higher, funds in the line of credit will grow faster. These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

* If the interest rate is higher, and it is likely that it will be in the future, less funds would be available.

While it may look like it’s to your advantage to wait until you are older, look at what happens if you do the revolving credit reverse mortgage now and leave the funds in a line of credit for your future use.

Funds in the reverse mortgage Line of Credit grow and this is the advantage of doing the reverse mortgage now. Here’s an example of future funds available if at the age of 63 you draw less than 60% in the 1st 12 months and you have $92,729 in your line of credit initially:

Line of Credit Available*	No Draws	After Draw of $5,600 Each Year	Jerry stated, “The Reverse Mortgage enables us to live in our home without mortgage payments. Line of credit will grow for our future needs. The whole package is a win-win for my wife and me.”
Age 68	$136,488	$92,557
Age 73	$188,364	$101,624
Age 83	$358,756	$134,739
Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1^st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%. The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan. Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%. Actual Line of Credit Grows based on current interest rate plus 1.25%. So if interest rate is higher, funds in the line of credit will grow faster. These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

Consider the amount you will have in the line of credit available for your retirement needs or long term care needs when doing the reverse mortgage now.

You can pull all or some of the line of credit funds out as you desire or the payment plan can be changed during the life of the loan, for example, you may change from having some or all of your funds in the line of credit to receiving monthly payments.(1)

Even when you use some of the funds each year you will be taking advantage of having the additional money you need annually plus still having funds in your line of credit for future use.

The Principal Limit or Loan Amount is based on age with the older one is receiving more funds. At the current Principal Limit Factors the increase is approximately 1% for each year. This is lower than the line of credit growth rate. With this taken into consideration, in just 5 years the funds in the line of credit with no draws will likely be higher than if you wait the 5 or 10 years to do a reverse mortgage.

Lucy* stated, “Having done the reverse mortgage has given me a new sense of security.”

Have No Monthly Mortgage Payments, Lower Interest Expense, Funds for Needs or Wants for Retirement Planning or Long Term Care Planning or Needs

In addition to a lower interest rate(2) with a reverse mortgage, eliminating your monthly payment will improve your cash flow because you don’t have to pay out that monthly payment each month. While the loan balance will rise because you are not making payments, the reverse mortgage is non-recourse which means there is no personal liability to you or your estate if the loan balance is higher than what the home can be sold at fair market value in the future. When the loan is being repaid, if the loan balance is lower than what the home can be sold for, the borrower or the estate receive the difference.

You have the funds to use during the term of the loan for whatever you need or want. By doing the reverse mortgage earlier you have use of funds that otherwise would go toward your monthly mortgage payments. Why not improve your cash flow sooner than later?

You do have the option of making payments with your reverse mortgage – it’s just not required. You can choose when, how often and how much you want to pay.

If you make the payment(s) on the reverse mortgage, the payments will reduce the loan balance. And with the adjustable rate, open-end reverse mortgage the payment will increase the Line of Credit meaning the funds are available in the future. And over time the funds available are likely to exceed the home value at the time the reverse mortgage was initiated. Additionally, using Moody’s Analytics, the line of credit is likely to grow faster than the home is appreciating.

Consider if you do the reverse mortgage now, let the line of credit grow and in 8 years you have a medical situation. If you have a conventional mortgage you’ll have to balance paying mortgage payments with paying medical bills. With the conventional mortgage if you don’t pay your mortgage in a few short months you are likely to be facing foreclosure.

If you are choosing to make monthly mortgage payments on the reverse mortgage, you could stop the payment being they are not required and therefore eliminating the risk of foreclosure from not making the monthly mortgage payments. You have the option of resuming making payments if you choose. You still need to pay your property taxes, keep hazard insurance on your home and pay home owner association dues if applicable.

Take advantage of doing the reverse mortgage now while the interest rate is low. And then when the interest rate does increase, the line of credit will grow even faster (the growth rate is determined by the interest on the loan plus 1.25%). The line of credit will grow regardless of the home values increasing or decreasing.

In waiting to do a reverse mortgage until you feel you have a need, you are taking risks. For example:

Reduced Loan Amount or Principal Limit

Over the last few years HUD has reduced the calculation of the Loan Amount (Principal Limit). We don’t know if HUD may find it necessary to decrease this again and/or increase the FHA Mortgage Insurance Premiums. Waiting may mean less funds are available if HUD reduces the Loan Amount or Principal Limit.

Higher Expected Interest Rates Equals Less Funds Available

With FHA Reverse Mortgages the Expected Interest Rate is calculated weekly and is used to determine initial funds available. The Expected Interest Rate is considered a long term projection of future interest rates. As the Expected Interest Rate changes to a higher rate, in the future less initial funds could be available to borrowers. It is unknown as to the timing of when the rates may rise but at some point they will likely go up.

Properties that qualify

HUD already has restrictions on condos that are not FHA approved making it difficult to do a reverse mortgage on condos. (The spot condo approval was removed in 2010.) We are seeing lenders add manufactured homes, log homes, berm, and rural homes to their list of ineligible homes. While there are still some lenders who continue to lend on these properties based on HUD’s requirements, this may change in the future and they are likely to tighten the underwriting requirements for these types of properties. If you are in one of these properties you should look at doing a reverse mortgage now while it’s still an option.

Higher Valued Home Owners Should Do A Reverse Mortgage Before The Lending Limit Is Reduced

Currently the FHA HECM (Home Equity Conversion Mortgage) Lending Limit is $625,500. At some point this rate could be reduced to a lower national limit or be based on a lending limit in the county where one lives (as is currently with a Forward FHA). What this means is that if your home is valued more than the Lending Limit amount you can receive is based on the Lending Limit rather than the home value. For example if your home is appraised at $700,000, currently we would use $625,500 to determine the reverse mortgage Principal Limit. A lower Lending Limit would make a big difference on the amount one can receive. If you have a higher valued home look at doing your reverse mortgage now instead of waiting.

What would it be like for you to have security knowing you readily have funds available in your Line of Credit during your retirement years and the benefit of improved financial health?

You may not need a reverse mortgage now but it may benefit your retirement and long term care planning if you do one now.

(1)Consult with an Elder Law Attorney or financial consultant regarding the impact of pulling all your funds from a line of credit will impact Medicaid.
(2)Historically the HECM open-end credit reverse mortgage interest rate has been lower than what one can generally qualify for with a conventional mortgage.

Some information used in this article obtained from nu62(sm)

*Name changed to protect privacy

*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future

Topic first published 2009; Updated 2014
© 2009-2014 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/pxPEm-FD

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.

Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

Posted on February 12, 2014 by sidac

It seems like every article, report or someone you talk with states the reverse mortgage closing costs are high. Have you looked at closing costs on a conventional home mortgage?

As with a conventional home mortgage (called a “forward” by HUD), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan. Let’s compare the costs side-by-side for a Home Equity Conversion Mortgage or HECM and a conventional/forward mortgage.

The third party and recording fees are standard for any loan. Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for their services. If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest. Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees	Reverse FHA	Forward	Forward FHA
Appraisal	$500	$450	$500
Credit Report	$25	$25*	$25
Flood Certification	$10	$10*	$10
Courier Fee*	$35	$35*	$35
Escrow, Settlement, or Closing	$275	$275	$275
Abstract or Title Search	$110	$110	$110
Title Exam	$110	$110	$110
Document Preparation	$125	$125*	$125
Title Insurance	$475	$392	$392
Endorsements	$50	$50*	$50
Recording Fees	$92	$46*	$92
County/Mortgage Registration Tax	$295	$384	$384
Plat Drawing	$60	$60	$60
Name Search	$35	$35	$35
Special Assessment Search	$35	$35	$35
Counseling Fee	$125	N/A	N/A
TOTAL THIRD PARTY FEES	$2,357	$2,142	$2,238

* These fees are included in the Qualified Mortgage (QM) Rule; included in as part of the “Closing Costs” under Lender Fees.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA. The FHA reverse mortgage includes a .5% or a 2.5% initial mortgage insurance premium, determined by the funds being drawn in the first twelve months. The advantages with FHA insuring the reverse mortgage include:

Guaranteeing the funds are available for you during the term of the loan.
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.
Providing a line of credit growth rate (available only with reverse mortgages).
As a reverse mortgage it is a non-recourse (no personal liability) loan; the FHA MIP will cover the difference to the lender rather than the borrowers or their heirs having to come up with the difference

The origination fee is what the originating lender receives to cover the loan officer’s compensation, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc.. The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans. HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000. With a minimum of $2,500.

In some situations the lender will offer no or a reduced origination fee however the interest rate will be higher than if one pays the origination fee.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination. One is essentially borrowing the interest and mortgage insurance premium each month because they are not making a payment. And as one draws from their line of credit or through monthly payments the loan balance will increase making the loan amount higher.

An estimate based on a $200,000 home value (based on loan amount at 80% for the Forward loans):

LENDER FEES	REVERSE FHA	FORWARD	FORWARD FHA
Origination/Points	$4,000	$4,800*	$1,600
MIP	$1,000**	$0***	$2,800
Administration Fees	$0	$900*	$900
SUBTOTAL LENDER FEES	$5,000	$4,800	$5,300

Prepaid Interest****	N/A	$375	$375
TOTAL LENDER FEES	$5,000	$5,175	$5,675

*QM Rule closing costs cannot exceed 3% of the loan amount. Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate.
** Based on .5% – taking 60% or less within the 1st 12 months.
*** Conventional loans may have a Private Mortgage Insurance fee.
**** Forward loans have up-front prepaid interest due for remaining days in the month of closing; this is an example amount. Funds will also be needed up-front to set up escrow.

TOTAL LOAN FEES	REVERSE FHA	FORWARD	FORWARD FHA
	$7,357	$7,026	$7,913

NOTE THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM! Refer to above comments on the benefits of FHA insuring the reverse mortgage.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses other than the FHA appraisal. (As of 2010 Appraisal Management Companies must be used to order and process the appraisal. This fee is required to be paid for by borrower up front or “out of pocket.”) All of the fees for reverse mortgages and forward mortgages must be disclosed on the Good Faith Estimate (GFE).

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time. For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now (if you even qualify), you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.

Whereas with the reverse mortgage you pay the closing costs up-front and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence. The additional funds would be either through monthly payments, a line of credit if that is the type of loan you have chosen.

Consider the benefits of the reverse mortgage which include:

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

Now that we’ve compared the costs side-by-side, are you surprised that they are comparable to a conventional loan?

Comparison of fees first published 2009; Updated 2014; updated 12/3/2014
© 2009-2014 Beth Paterson, 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.

Without The Reverse Mortgage Money I Would Have Been “Up The Creek Without A Paddle.”

Posted on January 19, 2014 by sidac

My reverse mortgage was a good decision I recently received the following letter from a reverse mortgage client of mine outlining why a reverse mortgage was a good decision.

Dear Beth,

I am writing about why a Reverse Mortgage was a good decision for me. I have had mine since 2010. My husband died in 2009 and although I was able to keep up with my monthly bills, I would run short of cash when Auto Insurance, Fire Insurance, Property Tax and other unexpected bills would arrive.

My family would always be willing to help me with those bills but I did not want to be a burden to them. My daughter-in-law Nancy belongs to a Women’s Group with you, Beth Paterson, and suggested that I may want to look into a Reverse Mortgage. The family was with me throughout the whole procedure and they agreed that it was a good choice for me.

Having a Reverse Mortgage has given me monetary independence and I never realized how important having cash available would be until I fell in October 2013 and broke my right shoulder. I needed care-givers two times a day. Without the Reverse Mortgage money I would have been ‘up a creek without a paddle’. I simply filled out a form, mailed it to the mortgage company and they transferred the needed funds into my bank account. Financial independence saved the day.

Barbara H.

A reverse mortgage is a mortgage like any other mortgage, using the equity in one’s home, but has special terms for homeowners 62 and over. There are no income or credit score qualifications for the interest rate and no monthly payments required. Senior homeowners maintain the title as the reverse mortgage lender does not own the home. Borrowers are responsible for paying their property taxes and insurance as well as maintaining the home. Reverse mortgage borrowers are highly protected – more so than with any other loan.

The HECM Adjustable Rate program allows for borrowers to receive their funds in monthly payments, line of credit, lump sum or a combination of these. The monthly payments can be structured as tenure payments, for life of the loan, or as they need. The line of credit grows so more funds become available in the future. There is also a HECM Fixed Rate option which is favorable if one is pulling all their funds out in a lump sum.

As a non-recourse loan there is no personal liability when repaying the loan, the loan is repaid from the property only. This means if the loan balance when due and payable is $200,000 but the home can only be sold for $150,000 the borrower or the estate do not have to come up with the $50,000 difference. The loan is generally repaid from the sale of the property when the home is no longer the primary residence of the borrower, usually when they move, die or sell. If the home is sold for more than the loan balance the remaining equity goes to the borrower or the estate.

Barbara has the line of credit option which, with the growth rate, has grown over time. The line of credit is there for situations like hers.

Are you or do you know someone who would like to have access to funds providing financial independence and not rely on others? Consider a reverse mortgage!

*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future

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-Z2

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.

Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs

Posted on November 11, 2013 by sidac

Through the years I have had the honor of assisting veterans to be able to stay in their home using a reverse mortgage. Three in particular come to mind.

Earl was a World War II Veteran who had some memory and health issues but wanted to remain in his home. His Power of Attorney set up the reverse mortgage which allowed him to have funds to bring in some home care assistance and stay in his home.

Jack was also a World War II Veteran. He and his wife did the reverse mortgage to be able to supplement their retirement funds and to remain in their home. They decided to leave their reverse mortgage funds in the line of credit so they would have funds for their future needs whether it be emergency funds or to pay for care needs.

Jim was a Veteran of the Koran War. Jim and his wife used their reverse mortgage to pay off their conventional mortgage which improved their cash flow since they no longer had a monthly mortgage payment to make. They had some additional funds in a line of credit. When they sold an RV they took the money from the sale and made a payment on their reverse mortgage. The pre-payment reduced their loan balance but also increased their line of credit funds giving them a larger amount available for their future needs.

When meeting with my clients I always enjoy hearing their life stories. These three were no exception. When meeting with them I have enjoyed and been humbled hearing their stories of their service. One was involved in the bombing of Japan. He shared that years later he met a Japanese Veteran who was fighting on the other side. And as they talked they found a bond, with no anger or bitterness.

These three veterans have all found the FHA HUD insured Home Equity Conversion Mortgage (HECM) has served them in their retirement years.

On this Veteran’s Day I want to say thank you to these and my other clients as well as all who served in the armed forces so that we may have our freedoms. As they have fought for our country’s freedom, it’s been an honor for me to be able to serve them so they have their freedom to remain in their home with funds for their needs and desires.

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.

Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon

Posted on August 19, 2013 by sidac

The HECM reverse mortgage the "cheese" that is changing.

The HECM reverse mortgage is the “cheese” that is changing.

Seems no one likes change mainly because of fear, fear of change and fear of the unknown. But change is a part of life and so we need to accept and adapt. In the book, “Who Moved My Cheese?” by Spencer Johnson, M.D., the characters of this parable, mice Sniff and Scurry, and little people being the size of mice, Hem and Haw, search through a maze looking for their cheese, which kept moving. While Sniff and Scurry kept moving forward to find their cheese Hem and Haw hemed and hawed.

Those of us in the reverse mortgage industry as well as you, prospective borrowers, are in the maze and the FHA insured, Home Equity Conversion Mortgage or HECM reverse mortgage is the “cheese” that is moving. We don’t know exactly what direction the HECM will take, what we do know is after The Reverse Mortgage Stabilization Act of 2013 was passed giving HUD authority to make the changes to improve the fiscal safety and soundness of the program, changes will be taking place with reverse mortgages in the very near future.

As we navigate through the maze of the HECM reverse mortgage we are looking at the likely changes:

The amount of the principal limit or maximum funds available to borrowers will be less.
Additionally we expect that borrowers may be restricted on the amount of money they can draw up front.
Financial assessments will be implemented to determine one’s ability to pay taxes and insurance.
Borrowers may be required to set aside funds for taxes and insurance payments.
Some homeowners may no longer qualify for the reverse mortgage based on these changes.

As the characters in “Who Moved My Cheese?” reacted differently, we are all going to be reacting differently to the changes. Which character are you going to be like?

Are you going to be like Sniff and Scurry who saw the changes coming and take action and move forward now?
Or like Haw and realize if you stay in the same situation you could be worse off than if you take action now?
Or are you going to be like Hem and let your fear keep you waiting too long for the most funds available and/or long enough you may not qualify for the new program?

Age only matters if you’re cheese… or doing a reverse mortgage.

My suggestion is if you, or someone you know, are considering a reverse mortgage, do not let your fear keep you from moving forward. Be like Sniff and Scurry and move forward now to find the “cheese” and take advantage of the current reverse mortgage program before the changes go into effect so you still receive the biggest benefits.

If you are in Minnesota and want to ensure you are locked into the current reverse mortgage program before it changes, please contact my office to answer your questions and to assist you. For other states contact your local reverse mortgage originator for assistance.

And for me, I’m taking the paths of Sniff and Scurry, by accepting that changes happen, anticipating the changes, as well as adapting to the changes as they are necessary for the survival of the reverse mortgage program. As I wrote when some lenders exited the reverse mortgage industry, We Are Not Chicken Littles – The Sky Is Not Falling, the reverse mortgage will remain a viable option but it will be different than it is today. I will continue to be here even after the changes have taken place to assist seniors to remain in their home and have funds for their needs and wants through reverse mortgages.

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.

You’ve Decided To Do A Reverse Mortgage… Should You Do The HECM Standard or The HECM Saver?

Posted on March 11, 2013 by sidac

AS OF OCTOBER 1, 2013 THE HECM STANDARD AND HECM SAVER PRODUCTS ARE NO LONGER AVAILABLE.

Deciding between the different options of the reverse mortgage can be challenging and certainly depends on your situation. The Home Equity Conversion Mortgage, or HECM, is the most common reverse mortgage and only one available in Minnesota. Before looking at the difference between the HECM Standard and HECM Saver, let’s look at the similarities.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for seniors home owners 62 and older. Advantages for seniors are with the reverse mortgage there are no income or credit score requirements to qualify and no monthly payment requirements. Borrowers are responsible for paying property taxes and insurance.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen.

The funds available can be received in a lump sum, monthly payments, or a line of credit. 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 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). The repayment amount is the lesser of the loan balance or fair market value of the home. As a non-recourse loan there is no personal liability to the borrowers or their estate for repayment,. If there is remaining equity, it goes to the borrowers or their heirs.

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.

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 and control.

Because the closing costs are up-front, they are often perceived as high and often scare people away. However, as with a conventional loan, there are traditional closing costs 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 HECM Standard is the original HECM reverse mortgage, first insured by FHA in 1988. In 2010 the Saver was introduced. The Saver has a reduced up-front FHA MIP of 0.01% compared to 2.00% for the Standard. But it also reduces the Principal Limit available to borrowers. While the Saver may be appealing because of the lower up-front MIP, in the long run it may not be the best option.

Initially Karen liked the idea about the reduced closing costs of the HECM Saver. As we compared the HECM Standard and HECM Saver she has a different perspective.

With the HECM Standard Adjustable Rate she would receive over $13,000 more than the HECM Saver Adjustable Rate and $12,000 over the Saver Fixed Rate based on her home value of $170,000. The Fixed Rate requires that all funds be drawn as a lump sum at closing vs having the flexibility of monthly payments, line of credit, lump sum or a combination of these with the Adjustable Rate.

Because she didn’t have any mortgages to pay off or other needs for all funds initially, pulling all the funds out in a lump sum with the HECM Standard Fixed Rate or Saver Fixed Rate (the only fixed rate option available as of April 1, 2013) is not the best option for her situation. So it came down to deciding which of the two Adjustable Rates would best fit her situation.

Being Karen plans on staying in her home for many years to come, when looking at the estimated Amortization Schedules, the HECM Standard Adjustable Rate option is more advantageous for her. With the higher funds available initially with the HECM Standard, she could leave funds in the line of credit to use as she needs. The line of credit grows so more funds become available over time meaning she can access more over time.

Or with the tenure monthly payment option she would be able to receive more in her monthly payments as long as she remains in the home as her primary residence.

If the interest rate is higher on the HECM Saver, the increased costs of the MIP up-ftont MIP for the HECM Standard is diminished over time when compared to the HECM Saver by the lower interest rate it has versus the HECM Saver. But even if the interest rate is the same on the two adjustable rate programs, less funds are available up front which would mean if in the future she needed more funds she would need to refinance, paying closings costs a 2nd time. Being she plans to stay in the home for many years to come, the HECM Standard providing more available funds initially will best suit her situation.

The HECM Saver could be beneficial to those who don’t want to pay as much in the up-front closing costs but also don’t want to use as much equity from their home. It can be ideal if one plans on moving in a shorter period of time or has a higher home value and wants to preserve more of the equity.

Mark and Margaret are considering moving to a one-floor home in two to three years but needs some extra cash flow now. The HECM Saver with the lower up-front MIP is more advantageous for their situation. This would preserve some of their equity for when they sell. And at that time
they could use the HECM for Purchase program to purchase their new home without having monthly mortgage payments.

Before assuming the lower up-front MIP of the HECM Saver is the best option, consider your long-term goals and needs, look at the calculations and Amortization Schedules to determine which is going to the most advantageous for your situation. While we can’t predict the future, reviewing the options can help you make better plans for your future.

*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future

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.

Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage.

Posted on March 3, 2013 by sidac

Are you over 62 and want to downsize? Move to a townhome so you don’t have to do the yard work? Move to a one-level home? Move closer to your children? Move to a larger home to have space for when the family comes to visit? Do you want to move to your new home but don’t want to have monthly mortgage payments? The HECM for Purchase program may be your financing option.

The FHA insured reverse mortgage program that allows those 62 and older to purchase their new home and then not have monthly mortgage payments is called HECM (Home Equity Conversion Mortgage) for Purchase. The features and terms as well as the steps for the HECM for Purchase are the same as with the regular reverse mortgage. However, because it is a unique process, there are a few points you and all parties involved need to be aware of to make it a smooth transaction.

The properties that qualify for the HECM Home Purchase include single family, 1 to 4 family dwelling units if the borrower/owner resides in one unit, FHA approved condos, manufactured homes that meet HUD’s standards.
To run our calculations we use the lessor of the final appraised value, sales price, or FHA mortgage limit for a one-family residence.
- If the purchase price is $190,000 and the appraised value is $200,000, we would use the $190,000. Or if the purchase price is $210,000 and the appraised value is $200,000, we use the $200,000.
The proceeds available to the borrower are calculated the same way as with any reverse mortgage, having all the closing costs (origination and FHA MIP, reports, title and escrow/settlement fees) included in the loan so there are no out of pocket expenses other than the appraisal and potentially any inspections. The Net Principal Limit is the amount available to the borrower.
- Note: When I’m working with those exploring homes, I run several calculations at various possible home values so when the borrower and their real estate agent are looking for a home, they will have an idea of the home value and the cash the borrower will need at close.
The borrower will need to have the difference between the Net Principal Limit (loan amount) and the purchase price available. For example:
- If the purchase price and the appraised value is $200,000 and the Net Principal limit is $124,000, the borrower will need $76,000* to purchase the $200,000 home.
- If a borrower has $100,000 in funds they want to use to purchase the same $200,000 home, they could combine their $100,000 with the $100,000 from the reverse mortgage proceeds to purchase the home and then have $24,000 in their reverse mortgage line of credit when using the adjustable rate, LIBOR, program. (The fixed rate requires you to pull all available funds at close.)
  - Borrowers must use cash on hand, cash from the sale, liquidation of assets or Gift funds (must meet HUD’s approved funding sources and source of funds needs to be documented).
    - The additional funds cannot come from Builder incentives, Seller financing, Seller contributions or concessions, any person or entity that financially benefits from the transaction or third party that is directly or indirectly reimbursed by any of the parties benefitting in the transaction or Credit Card advances, sweat equity, trade equity, rent credit. Cannot use loan discount points, interest rate buy downs, closing cost down payment assistance, gifts or personal property given by the seller or any other party involved in the transaction. Seller can pay their share of taxes and Home Owner Association fees if applicable.
The borrower may choose any of the options/interest rate options:
- HECM LIBOR
- HECM Fixed Saver
  - For calculation purposes our rates change every week. The rate cannot be confirmed until the week of closing. However, we have a Principal Limit Rate Lock (on the index of the LIBOR which means we can use the rate at the time of application or closing, whichever is the most favorable to the borrower, to determine the loan amount available.) For the process of planning how much will be available to the borrower, I initially use the rate and amount of the program chosen at the time of application.
Rather than using all reverse mortgage funds, more personal funds can be used for the purchase so the reverse mortgage can be set up with a Line Of Credit Option (HECM LIBOR option only)
Seller has to be the owner of record for 90 days prior to the date of the sales contract (based on when recorded). (This is to protect against property flipping.)
Prior to completing an application HUD requires the Certification of Occupancy.
The Original Purchase Contract or Certified Copy of the Purchase Contract is needed for underwriting.
Counseling must be completed by a HUD approved HECM counseling agency that has been approved to provide reverse mortgage counseling. Minnesota requires that the counselor be located in Minnesota. We will provide a you a list of HUD approved counselors.
The property must be livable at the time of closing. Any required repairs must be completed prior to closing by the seller – no repairs or repair set asides are allowed.
Funds are provided at closing, as there is no rescission period.
The new property has to be the primary residence and occupancy must happen within 60 days of closing.
One’s existing home may be retained as rental property or if purchasing current home prior to the sale of existing home income verification will be required to document the ability to maintain both properties. (This is prevent the practice of “buy and bail.”)

Using the reverse mortgage to finance the purchase of your new home may be your solution to meeting your goals without having a monthly mortgage payment.

*You may also need funds for property taxes, initial hazard insurance premium, home owner association dues, etc.

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.

Minnesota Reverse Mortgages SIDAC

Minnesota Reverse Mortgage Information, Facts and News from the Experts Excelling in Service

Category Archives: Financing Options

Reverse Mortgages Offer New Products for Better Options for Borrowers

Memories Created for Reverse Mortgage Heirs

Reverse Mortgage Borrowers Remain in Control

Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

Without The Reverse Mortgage Money I Would Have Been “Up The Creek Without A Paddle.”

Veterans Who Have Served Our Country Have Found The Reverse Mortgage Has Served Their Needs

Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon

You’ve Decided To Do A Reverse Mortgage… Should You Do The HECM Standard or The HECM Saver?

Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage.