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

Benefit from Reverse Mortgage for Financial and Long Term Care PlanningI 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 1st 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 1st 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.

Reverse Mortgage Financing Retirement

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

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.

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

Reverse Mortgage Closing Costs Compare to Conventional MortgageIt 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

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-Z3

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.

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

My reverse mortgage was a good decisionI 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

©2014-2015 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-Z2

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.

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

Veterans who have served have been served by reverse mortgagesThrough 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.
Veterans who have served have been served by reverse mortgages
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.

©2013 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-Z1

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.

Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon

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.

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.

©2013 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-Z0

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.

 

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

Deciding between HECM Standard and HECM Saver

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.

HECM Saver Most AdvantageoHECM Saver Most Advantageous When Moving in 2 yearsusMark 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.

©2013 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-YZ

*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

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 Protects Retirement Plan

Reverse Mortgage provides money when there's too much month at end of moneyHave you seen the sign, “Too much month at the end of the money?”  That applied to Pat and Mary’s situation.  In their mid 70’s, Pat and Mary planned for their retirement and have a good plan in place. But as their life changed they found there wasn’t enough money to last through the end of the month.  Creating the needed additional funds for each month from their retirement plan would impact their resources for their future.  Therefore their financial planner suggested they look into using their home equity and explore a reverse mortgage.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for senior home owners 62 and older.  With the FHA insured reverse mortgage, Home Equity Conversion Mortgage (HECM), the most popular and only one available in Minnesota, there are no income or credit score requirements to impact the interest rate and no monthly mortgage payment requirements. *(See note below about Financial Assessment.)

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 tenure payments (as long as you occupy home as primary residence) or as one needs as long as the home is the primary residence of at least one of the borrowers.  Funds in the line of credit grow so more funds can be available in the future.

The loan is due and payable when the home is no longer the primary residence of the borrower(s) such as they move, sell or die, or on their 150th birthday.  As a non-recourse loan, if the loan balance is higher than what the home can be sold for, the borrower(s) or their estate don’t have to pay with the difference, the FHA Mortgage Insurance Premium (MIP) covers the difference.  And if the home is sold for more than the loan balance, the borrower(s) or their estate receive the difference.

After being educated about the reverse mortgage including the positives and negatives, rather than using their retirement funds so they could be protected for their future needs, Pat and Mary decided to do a reverse mortgage.

Doing the Standard Adjustable Rate HECM, they set up the proceeds available to receive a portion in monthly payments, with the balance in a line of credit that they can use if and when they need it.

Receiving the monthly payments allows them to live comfortably, meeting their living expenses without running out of funds before the end of each month.

The line of credit grows at the rate on the reverse mortgage plus 1.25, i.e. if the rate is 2.5% the growth rate will be 3.75%.  If the interest rate goes up, the growth rate does also.  This means that more funds will be available in their unused portion of their line of credit.  They can use these funds for an emergency such as car repairs, a new furnace, medical expenses or for other needs and desires such as making a trip for a family reunion or out of town wedding.Relaxing with Reverse Mortgage in place

With the reverse mortgage in place providing monthly cash flow and a line of credit for other needs, Pat and Mary’s retirement funds can be protected for their future.  They are living their retirement years with a good plan along with funds for their current needs.  Now they have more money at the end of the month – what a way to live in retirement!

*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

©2013-2015 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-D7

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.

Let Me Educate You On Adjustable Rate Reverse Mortgages

Reverse Mortgage Interest RateWith the April 1st elimination of the FHA Home Equity Conversion Mortgage (HECM) Standard Fixed Rate, the Adjustable Rate will once again be the most common choice of reverse mortgage borrowers.  While adjustable rates mortgages have gotten a bad rap they should be understood and considered with reverse mortgages.  Let me educate you.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for senior home owners 62 and older.  Advantages for seniors, are with the reverse mortgage there are no income or credit score requirements to impact the interest rate and no monthly mortgage payment requirements.  The non-recourse loan is due and payable when the home is no longer the primary residence of the borrower(s) or on their 150th birthday.

To understand the programs and interest rate options, first you need to know how the loan amount is determined.  With the reverse mortgage the Principal Limit or maximum loan amount at the time of origination is determined by the home appraised value or FHA’s Lending Limit ($625,500 through 2013), the age of the borrower (the older one is the more they can receive), and the Expected Interest Rate of the program chosen.  The Expected Interest Rate is only used to determine the loan amount it is not necessarily the same as the interest rate on the loan.

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 as tenure payments (for life) as long as the home is the primary residence of at least one of the borrowers.  Funds in the line of credit grow so more funds can be available in the future.

Prior to 2008 the only reverse mortgage option was an adjustable rate.  In 2008 HUD introduced the HECM Fixed Rate.  And in October 2010 the HECM Saver was introduced which reduces the up-front Mortgage Insurance Premium (MIP) but also has a lower Principal Limit or loan amount; generally the HECM Saver has a higher interest rate as well.  The HECM Saver is available as an adjustable rate option and a fixed rate option.  The programs that have the full up-front 2% FHA MIP are called Standard, and are available in the adjustable and fixed rate programs (through April 1, 2013 when the Fixed Standard will be eliminated).

The Fixed rate is often a favorite option however with the reverse mortgage it requires that all the funds be drawn in a lump sum at closing which isn’t the best option for everyone’s situation.

The bad rap on adjustable rates occurred with conventional mortgages because when the interest went higher so did the monthly mortgage payments.  And this impacted many who couldn’t afford the higher monthly mortgage payments.  Let’s look at why  the reverse mortgage is different and should be considered as a viable option for senior homeowners.

  1. Because monthly mortgage payments are not required with the reverse mortgage, having the rate change doesn’t impact one’s monthly payment and/or cash flow.
  2. The Adjustable Interest Rate is the option that offers receiving funds as monthly payments, a line of credit, lump sum or a combination of these.
  3. Having more flexibility with how the funds are drawn is beneficial to borrowers.  If you don’t have a need for all the funds up-front then leaving them in a line of credit, which has a growth rate, or structuring monthly payments to your needs are more favorable options.
    • The growth rate on the unused portion in the line of credit is determined by the current interest rate on the loan plus 1.25.  For example if the current rate is 2.5%, the growth rate will be 3.75%.  If/when the interest on the loan increases so does the growth rate on the line of credit, meaning even more funds become available to the borrower over time.
  4. Because it is a loan against the property, not considered income, if one is receiving or will receive Medicaid (Medical Assistance in Minnesota) in the future, the adjustable rate is also more favorable, allowing you to draw funds as needed rather than as a lump sum which could impact receiving Medicaid.
  5. Taking funds as periodic payments means interest and the on-going MIP is accruing on the loan balance at a slower pace vs taking funds as a lump sum, especially when there isn’t a need or better use for lump sum funds.
  6. Monthly mortgage payments are not required however you have the option of making payments.  When the payment is made it reduces the loan balance and with the adjustable rate it is applied to the line of credit and available for future draws.
  7. The adjustable rate is low right now, and yes, it can adjust and be higher in the future, however it only impacts the amount due when the loan is due and payable.  And there is a cap of 10 points higher than the initial interest rate at closing.  For example, if the interest rate at closing is 2.5%, the cap is 12.5%.
  8. What we don’t know is when the rates will increase or how high they will increase but with the lower rates now, even if the rates do increase substantially the interest expense over the life of the loan will be tempered by the current low interest rates.
  9. And even if the reverse mortgage interest rate does go up, as a non-recourse loan when the loan is due and payable if the loan balance is higher than the home can be sold for, the borrower or the estate will not need to come up with the difference.  If the home can be sold for more than the loan balance due, the equity goes to the borrower or their estate.

Reverse Mortgages get the thumbs upWith an understanding you can see why the reverse mortgage, even with an adjustable rate, can be favorable to senior homeowners.

The HECM Saver is available in the adjustable rate and will remain an option with the fixed rate.  So if you really want a fixed rate you will still have the option, just remember less funds will be available and the interest rate is likely to be higher.

When considering a reverse mortgage review all the options, Adjustable Standard, Adjustable Saver or Fixed Saver, and decide which is best for your situation.

©2013 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-CD

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 Features and Terms Summary

Reviewing Reverse Mortgage DocumentsThere are many loan documents with the reverse mortgage (all mortgages actually) and it’s hard to remember all the details through the life of the loan.  To help you have a better understanding initially as well as be a reference in the future, this article summarizes the reverse mortgage features and terms.

  • A reverse mortgage is a mortgage or lien against your property allowing you to use the equity in your home.
  • Monthly mortgage payments are not required however you are responsible for property taxes and hazard insurance.
  • Through FHA, the Home Equity Conversion Mortgage (HECM) is a government insured program and regulated by HUD.
  • As a loan against your property, the funds are not considered income so Social Security and Medicare are not affected; and generally SSI and other public benefits are not affected; Medicaid can also be received under certain situations – consult with legal services for your situation.
  • Generally the funds received are considered tax free – consult your tax advisor regarding your situation.

Who Owns Your Home  

  • You retain title and remain a vested owner of your property.
  • You retain all rights and responsibilities of home ownership, including property maintenance, tax and insurance payments, etc.

Borrower Protection

  • Should the lender default, FHA will assume the responsibilities of the lender and guarantees funds are available to borrowers according to terms of the loan.
  • As FHA loan, interest rates are lower than they otherwise would be on a reverse mortgage.
  • Non-recourse: Borrower/Homeowner or the estate will never be obligated for more than the fair market value of the property.

Adjustable Interest Rate – HECMs

    • If you have selected an adjustable rate product, your interest rate may change over the life of the loan.
    • There is a lifetime cap on the rate; for the monthly adjustable rate it is 5 or10 points (depending on the lender) and for the annual rate it is 5 points over the initial rate at the time of closing.
    • The interest rate may adjust annually (maximum of 2 points with each annual change) or monthly. The current and future rates will be provided on your monthly statement.
    • The rate is based on the LIBOR index.

Interest is charged against your loan balance only. Unused line of credit and/or unused term/tenure payments will not accrue interest.

Fixed Interest – HECMs    

  • If you have selected a fixed rate product, your interest rate is fixed and will not change over the life of the loan.

Ongoing Costs

  • Interest accrues only on amounts borrowed.
  • Monthly charge for FHA Mortgage Insurance Premium (MIP) –  .5% (1.25% on loans closed prior to 10/2/2017) per year on loan balance (added to loan balance).
  • All costs, charges, and accrued interest are added to loan balance.
  • Essentially you are borrowing these funds each month because you are not paying them monthly; this is why the loan balance increases over time.

Line of Credit (if applicable)    

  • Available credit of unused portion of line of credit grows over time at the current applied interest rate plus .5% (1.25% on loans closed prior to 10/2/2017).  This is not interest, but a growth rate.
  • Interest is not charged on unused portion of line of credit.
  • Line of credit funds advances must be requested in writing from the lender/servicer.  Lender has 5 business days to process your request.

Term/Tenure Payments (if applicable)

  • If you have selected monthly Term or Tenure Payments, these monthly advances will be paid to you on the first business day of each month beginning the month after loan closing.
  • Interest is not charged on un-advanced monthly term/tenure funds.

Prepayment

  • Although monthly or periodic mortgage payments are not required, you may make full or partial payments at any time.
  • Please contact the lender/servicer for payment address and information.
  • Partial payments reduce the loan balance due.
  • Partial payments on adjustable rate HECM’s will create or increase the line of credit and these payments can be borrowed in the future.
  • Payments on fixed rate HECM’s are permanent payments.
  • Payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

Due and Payable

  • No payment is required until/unless one of the following occurs:
    • Borrower(s) no longer occupy the home as a primary residence.
    • Borrower(s) no longer owns the home.
    • All borrowers have passed away.
    • Property taxes are not kept current.
    • Homeowner’s/Hazard insurance is not kept current.
    • Flood Insurance (if applicable) is not kept current.
    • HOA dues (if applicable) are not kept current.
    • Required repairs are not completed.
    • Property is not properly maintained.
    • Title vesting changes are made.

Upon Death of Borrower(s)

  • If there is a surviving borrower(s) continuing to occupy the home, the reverse mortgage continues without any changes.  If a sole borrower dies or there are no surviving borrowers or a non-borrowing spouse, the reverse mortgage becomes due and payable in full. (Non-borrowing spouses see HUD Mortgagee Letter 2015-15 and check with the servicer regarding their rights)
  • Heirs/estate should contact the lender/servicer within 30 days to provide notice of the death.
  • A reverse mortgage is not transferrable to the heirs or estate.
  • The loan may be repaid from sale of property.
  • If heirs wish to keep the home, they may satisfy the debt by paying the lesser of the mortgage balance or 95% of the FHA appraised value of the home at that time.
  • Most lenders are allowing up to six months for heirs to settle the estate and repay the reverse mortgage (but timely communication with the servicer is required).  Where justified, HUD, who regulates the HECM,  may approve extensions beyond this time up to a total of 12 months.

Your Responsibilities

  • Pay property taxes.
  • Maintain homeowners insurance on property.
  • Maintain flood insurance (if applicable) on property.
  • Pay HOA dues (if applicable).
  • Complete required repairs timely.
  • Maintain property.
  • Not make changes to title vesting.
  • Return the annual occupancy certificate to lender.
  • Provide proof your property taxes have been paid annually.
  • Provide proof your property insurance has been paid.

When To Notify Your Lender

  • If you change your insurance provider.
  • If you change your bank for direct deposits.
  • If you are putting the property into a Trust.
  • Any other changes to the property.
  • If there is a claim from your property insurance.
  • When a Power of Attorney (POA) is being implemented to make decisions on your behalf.

©2013-2015 Beth Paterson and Greenleaf Financial, LLC, 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-Cr

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.