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What is a Reverse Mortgage?
Providing mortgage solutions for seniors & their family members
A reverse mortgage is a home loan program that allows you to convert the equity in your home into usable cash. FHA terms this a Home Equity Conversion Mortgage “HECM”.
- You do not give up title to your home
- You make no monthly mortgage payments as long as you occupy your home as your primary residence, maintain your property, and remain current on the property taxes, homeowners insurance and HOA dues
- No prepayment penalties
- Although the loan is not due and payable until you permanently move out of the home, it can be paid off at any point without prepayment penalties
- There is no time limit to how long the homeowner(s) may remain in the property. As long as one or both homeowners remain in the home as the primary residence and remain current on the property taxes, homeowners insurance and HOA dues, neither you nor your spouse will be required to leave or sell the home
- Your home does not need to be free and clear. Elimination of the current mortgage is one of the most common reasons seniors apply for a reverse mortgage
- You, or your heirs, retain 100% of the remaining equity upon the sale of the home.
Is a Reverse Mortgage safe? What are the qualifications?
The concept of a reverse mortgage originated in the mid 1960’s. In 1989, recognizing the incredible financial benefits this program offered, HUD was asked to take control of the program, eliminate some of the risks and insure the loans.
The qualifications are simple:
- The borrower must be 62 years of age or older
- Minimal income or credit qualifications
- You must own the home or be purchasing a home that you will occupy as your primary residence
- The home must meet standard FHA appraisal guidelines
When we say SAFE, we mean it!
In the best interest of the senior homeowner, FHA and HUD regulate:
- Loan Amounts
- Loan Terms
- Loan Fees
- The Maximum and Minimum Origination Fee
HUD mortgage insurance guarantees:
Federal regulations mandate that your HECM is a non-recourse loan. This simply means that under no circumstances can you or any member of your family be held personally responsible for repayment of any part of the debt. When the home is sold by you or your heirs, if the sale proceeds are insufficient to repay the debt in full, the remaining balance due is forgiven.
A borrower’s loan proceeds are secure. HUD guarantees that the seniors’ funds are not at risk. HUD also guarantees that there will be no interruptions in the loan servicing process.
Additional Safeguards!
Counseling:
Once you have received basic HECM information, you must receive independent third party counseling from a HUD approved HECM counselor in order to obtain a reverse mortgage.
According to the IRS, Reverse Mortgage proceeds are not income and as a result…
- Proceeds are not subject to income tax (consult your local tax advisor)
- No effect on Social Security
- No effect on Medicare
- Three Day Right of Rescission:
The rescission period is three business days after signing the loan documents, allowing the borrower(s) the opportunity to review their copy of the closing documents, ask questions and, if they choose, they may even cancel the transaction.
HECM Reverse Mortgage Products & Proceeds Options
Refinance – available as a HECM Fixed rate or Adjustable rate option (based on LIBOR index) to meet a variety of needs: HECM Fixed rate option – rate remains fixed for life of loan HECM Adjustable rate option – based on the LIBOR index with multiple margins to choose from.
- HECM for Purchase – also available as a HECM Fixed rate or Adjustable rate option
- Tenure – provides equal monthly payments over the life of the loan
- Modified Tenure – combines line of credit with monthly payments for as long as one borrower remains in the home
- Term – provides the largest monthly payment. Borrowers determine the term of payment (5yrs, 10yrs, 18 yrs. etc.)
- Modified Term – combines line of credit with monthly payments for a fixed number of months
- Line of Credit – funds are drawn as needed from line of credit until exhausted. The amount of cash available grows larger each month until then (growth rate)
Credit Line Growth Rate
The credit line growth rate is based on the current note rate and loan product plus monthly mortgage insurance premium (MIP). The options above are only available with adjustable rate (LIBOR) products
Single Disbursement Lump Sum Option
All available funds received at disbursement (required for Fixed rate HECM). No additional funds available after loan closing. You can also change payment options during the loan with the LIBOR – adjustable rate product
How is a Reverse Mortgage repaid?
Borrowers want to sell
- Property is sold
- HECM loan balance (principal plus accumulated interest and MIP) is repaid
- Remaining equity goes to the existing borrower(s) or their heirs
Borrowers want to sell and purchase a new home using a HECM for home purchase
- Combine a new reverse mortgage with the proceeds from the sale of a home or savings to purchase a new home
One borrower passes away
- Nothing changes – the loan is not due and payable until the last borrower moves or passes away
Both borrowers pass away
- HECM loan balance (principal plus accumulated interest and MIP) is repaid
- Remaining equity goes to the heirs. The heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, any remaining equity after the reverse mortgage is repaid is theirs to keep.
REAL ESTATE AGENTS!
Want to know how to grow your business?
HECMs Work for Realtors!
Real Estate Agents across the country are finding that a reverse mortgage may be an option for potential senior-home buyers who want to move or need to move but cannot qualify for a new mortgage or want to take on a new payment. The Home Equity Conversion Mortgage for Home Purchase (HECM) may be the answer, not just for your clients, but also for you, when you ask yourself the question: “How can I grow my business in the future?”
The Home Equity Conversion Mortgage (HECM) for Home Purchase has opened up new opportunities not only for Senior-Home Owners, but also for Real Estate Agents. Agents now have a reason to market to the fastest and largest growing demographic in the country. It is estimated that over 10,000 people a day in America are turning 62 years of age. The first wave of the Baby Boomer Generation is now receiving Social Security Income.
Many of today’s seniors are living in homes that no longer fit their life style. Many of the homes are multi-level, with the bedrooms upstairs, the kitchen on the main level and the laundry facilities down in the basement. In some cases the yard is too big in the summer to take care of, the drive way is too big in the winter to shovel. Many seniors today are living in homes that are too far from family & friends.
What they want is a new home. But what they don’t need is a new monthly mortgage payment at this latter stage of their life.
HECM For Purchase!
COULD YOU SELL MORE REAL ESTATE IF YOU HAD FINANCING THAT . . .
• Does not require monthly payments toward principal and interest?
• Has minimal income or credit requirements?
• Has many consumer safeguards and is FHA-Insured and HUD regulated?
Home Equity Conversion Mortgage for Home Purchase
Did you know senior borrowers age 62 and older can use a Home Equity Conversion Mortgage (HECM) to purchase a home? Many senior borrowers have heard about the benefits of paying off an existing mortgage utilizing a reverse mortgage. However, many are still unaware that they can also purchase a new home by combining a reverse mortgage with a down payment. This enables senior borrowers to purchase a new home without having to worry about making monthly mortgage payments (borrowers must remain current on property taxes, homeowner’s insurance and HOA dues)!
Purchasing a home with a reverse mortgage is very similar to purchasing a home with a conventional mortgage. Call me today to learn more about how reverse mortgages can help you increase your sales and help your customers increase their purchase power!
Articles
New FHA reverse mortgage boon to seniors. Posted by Bankrate. A new Federal Housing Administration, or FHA, reverse mortgage program can help senior homeowners relocate or downsize to a new home without giving up all their savings — and save them thousands of dollars in the process. Read more
Reverse Mortgage Can Be a Golden Opportunity. Posted by Jonathan Peterson, Los Angeles Times. Lenders and seniors warm up to that type of loan, though it’s not for everyone. Like millions of Americans, Bill and Helen Bluett’s greatest financial asset is their home, a Spanish-style dwelling just a quarter of a mile from the ocean in San Clemente. Selling the place and buying a cheaper one elsewhere could have brought the couple hundreds of thou-sands of dollars in extra money for their retirement years. But there was one problem with that idea. Read more
