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| Today is Wednesday, March 10, 2010 | |
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REVERSE MORTGAGES
We are committed to making the process easy and understandable so you will feel comfortable about your decision to obtain a reverse mortgage. Contact us to learn more about this program, to receive a free reverse mortgage packet, to obtain a free personalized benefit analysis, or to apply for a reverse mortgage. What is a reverse mortgage? What Is a Reverse Mortgage? What are the types of reverse mortgages? One type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the federal government through the Federal Housing Administration or FHA. Approximately, 90% of the reverse mortgages provided to date have been this type. The amount of the loan proceeds under the HECM is tied to the FHA loan limits for the area in which a home is located. Another type of reverse mortgage is the Simple Equity Loan. This type of reverse mortgage is considered a conventional loan, and is not insured by the government. This is typically a “jumbo” reverse mortgage, which is not limited in size by the FHA loan limits in an area. How does a reverse mortgage differ from a home equity loan? Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash. They differ in that with a home equity loan, you must make regular monthly payments of principal and interest; but with a reverse mortgage, you do not make any payment for as long as you stay in the home. In fact, you receive payment(s) from the lender. Also, there are income and credit requirements for a home equity loan but there are no income and credit requirements for a reverse mortgage. The size of reverse mortgage that a senior homeowner can receive depends on the type of reverse mortgage, the borrower’s age, current interest rates, appraised home value, and amount of borrower’s equity in the home. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get. What are the payment options for you to receive the money? Borrowers have the choice of receiving the proceeds from a reverse mortgage in the form of a lump sum payment, a fixed monthly payment for life, a fixed monthly payment for a finite time period or term, a line of credit, or a combination of these payment options. What types of properties are eligible? Eligible property types include single-family homes, townhomes, and condominiums. How can the loan proceeds from a reverse mortgage be used? The proceeds from a reverse mortgage can be used for anything, whether it is to supplement retirement income, to cover daily living expenses, to repair or modify your home, to pay for health care, to retire existing debts, to buy a car or take a “dream” vacation, to cover property taxes and insurance, to prevent foreclosure, etc. Some senior homeowners use reverse mortgages as a way to give their children or other heirs a portion of their inheritance now, so they can see those happy faces while they are still alive. Many seniors feel comfortable doing this since there are no monthly mortgage payments associated with a reverse mortgage. Are there any special requirements to get a reverse mortgage? As long as you own your home, are at least 62 years of age, and have enough equity in your home, you can get a reverse mortgage. There are no special income, credit, or medical requirements. Is it possible to get a reverse mortgage if there is an existing mortgage on your home? You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. You can pay off the existing mortgage with the reverse mortgage proceeds, or with savings. For example, let’s say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. In this scenario, you will be able to pay off all of the existing mortgage and still have $25,000 left over to use as you wish. If, however, you only qualify for $85,000, then you will have to come up with $15,000 from your savings to get the reverse mortgage. In this situation, all of the money from the reverse mortgage will be used to pay off the existing mortgage, but you will no longer have a monthly mortgage payment. How do proceeds from a reverse mortgage affect Social Security or Medicare benefits? Monies received from a reverse mortgage will not affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act. When must the reverse mortgage be repaid? Loan repayment is triggered when the home is no longer occupied as the borrower’s primary residence. This can occur if the sole remaining borrower dies, sells the home, or permanently moves out. What is the amount owed when repayment is due? The amount to be repaid is the sum of the loan proceeds plus accumulated interest not to exceed the appraised market value of the home. A reverse mortgage is a “non-recourse” loan, which means that you, your heirs, or your estate cannot be required to repay more than the appraised market value of the home at the maturity of the loan. If the loan balance exceeds the value of the home, you, your heirs, or your estate will only be obligated to repay an amount up to the current appraised value of the property. If the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you, your heirs, or your estate. Does the lender take title to the home when the reverse mortgage is made? A reverse mortgage is only a lien against the property. Therefore, the title remains in the homeowner’s name. What are the closing costs to obtain a reverse mortgage? The fees and closing costs on a reverse mortgage are somewhat higher than on a traditional mortgage. Therefore, if you anticipate moving in the short term, spreading the fees only over a couple of years or so would make this type of mortgage too expensive. For a Home Equity Conversion Mortgage (HECM) insured by FHA, the standard fees are a loan origination fee of 2% of your home’s FHA appraised value or the FHA maximum loan limit in your county, whichever is less, an FHA mortgage insurance premium of 2%, appraisal fee, and other ordinary closing costs such as a title company fees and document preparation fees. A monthly servicing fee will also be charged and will be financed into the loan balance so you will not have to pay it each month in cash. For the Simple Equity Loan (for higher loan amounts), there is no 2% FHA As a part of the reverse mortgage process, you will be provided with a Good Faith Estimate delineating the anticipated fees for your loan. Are you responsible for any other expenses related to the property? You are required to pay your property taxes, homeowners insurance premiums, flood insurance premiums (if required), and other expenses necessary to maintain the home. Is counseling required for a reverse mortgage? Under federal guidelines, all consumers who obtain a Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Administration or FHA, are required to receive counseling to make sure this type of loan is best for them. The counseling is provided at no cost by approved non-profit counseling agencies. The counseling usually takes 45-60 minutes and may be done by phone or in person. A counseling certificate is issued to those homeowners who complete the counseling session. Counseling may or may not be required for those consumers who obtain the Simple Equity Loan (typically a “jumbo” reverse mortgage), which is not insured by the government. Will a reverse mortgage affect the future sale of the home? The impact of a reverse mortgage is no different than that of a purchase or refinance mortgage. Repayment of the mortgage is due upon sale of the home. Is there any tax liability for the reverse mortgage proceeds? No. Funds received from a reverse mortgage are generally categorized as loan advances and not taxable income. Consult your tax advisor for more information.
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