|
|
April 1st, 2012 by Michael Seals
Information about the reverse mortgage industry
and the products available have improved significantly over the past few years. With this evolution, though, comes some additional complexity. Saver or Standard? Fixed or Adjustable? It’s important to learn about the options now available and consider what implications they may have on your particular situation. Reverse.org is a great website with useful content. Please take a few minutes and explore the site. Ask questions if you haven’t found an answer.
Posted in Blog | Comments Off
May 18th, 2012 by Michael Seals
What Are They And When Does Each One Make Sense For You?
Like all mortgages, borrowers have multiple program options when it comes to reverse mortgages. For the federally-insured Home Equity Conversion Mortgage (HECM), there are two types: fixed and adjustable rate loans.
For each product, there are some considerations that come into play when making a choice about which might fit your situation best.
Fixed Rate Reverse Mortgage
With a fixed rate reverse mortgage, borrowers receive one rate for the entire course of the loan. The product also requires that you receive all of the loan proceeds in a lump sum at the time of closing.
For many, the fixed rate option is a great choice because it provides peace of mind knowing what your interest rate will be for the life of the loan.
Adjustable Rate Reverse Mortgage
Adjustable rate reverse mortgages offer more flexibility and typically provide borrowers with lower interest rates than fixed rate loans.
The rate is based off of either the LIBOR or CMT indexes. The term LIBOR stands for “London Inter-Bank Offered Rate” and is an alternative to the United States Treasury Rate (CMT).
You can opt to receive your loan proceeds either as a lump sum, a line of credit, or as term or tenure payments paid to you on a monthly basis. Borrowers also have the option of doing some combination of the three.
For example, you might take some proceeds upfront to pay off an existing mortgage, and opt to put the remainder of the loan in a line of credit. The unused portion of the line of credit will grow over time, increasing access to borrowing power.
In an adjustable rate reverse mortgage, you will see one rate at the beginning of the loan, but that rate is then subject to change—within certain boundaries.
In regards to annually adjusted HECM loans, the adjustable rate cannot increase over a certain cap amount based on the initial rate of the reverse mortgage. Lenders may not adjust annually adjusted HECMs by more than two percentage points per year and not by more than five total percentage points over the life of the loan, as mandated by the Federal Housing Administration. This cap protects you from the effects of a rapidly changing rate environment, should one occur during the life of your loan.
Which makes the most sense?
It’s important to take a look at a few things in deciding which reverse mortgage product is best for you. First, what are you planning to do with the loan proceeds and how immediately do you need them?
Example 1:
I have a substantial mortgage on my current home and I would like to eliminate my mortgage payments in order to reduce monthly expenses.
In this case, the fixed rate product may be the best option, because it allows you to borrow the full loan amount upfront. Your mortgage will be paid off from the reverse mortgage loan proceeds, eliminating your monthly mortgage payments. Any remaining proceeds can be used at your discretion, and the rate at which your interest accrues will remain the same over the entire course of the loan.
Example 2:
I don’t need the proceeds of the loan right now, but it would be nice to have some funds that I can use in the future if I need them, for medical expenses or any other emergencies that might come up.
This is a case where an adjustable rate loan may make better sense. You can reserve the funds as a line of credit and can draw on them whenever you wish.
These are just two scenarios that some borrowers might be facing. However, every situation is different, so it is best to consult a reverse mortgage professional who can help you determine which product is best for your specific needs.
Tags: fixed-rate, reverse mortgage rates, variable rate, versus
Posted in Blog | No Comments »
May 18th, 2012 by Michael Seals
Forward vs. Reverse Mortgages: Which is Right for You?
If you’re not too familiar with the concept of “reverse” mortgages, you might be wondering how these loans differ from traditional or “forward” mortgages.
While there are some similarities between the two types of loans, they’re actually quite different in ways that may be very beneficial to senior borrowers. Depending on your current situation, getting a reverse mortgage might be a better option for you than a conventional loan.
“Forward” Mortgages
When getting a “forward” mortgage, the home buyer is required to make a down payment, typically between 10% and 20% of the home’s value.
In return for providing the loan—which covers the rest of the home’s value—the lender will charge the borrower an interest rate that depends on the market and product type.
To qualify for a mortgage, borrowers are required to show they have the income to fulfill all financial obligations—including existing car or student loans and credit card bills. To verify this, lenders will typically require that borrowers provide pay stubs and their job history.
Credit history is another important factor, and lenders can require borrowers to have a certain credit score—the higher the better—in order to qualify for a loan and a favorable interest rate.
With forward mortgages, the borrower also must make payments to the lender each month until the loan is paid off. Failure to repay the loan on time can result in foreclosure.
“Reverse” Mortgages
Like traditional loan products, a reverse mortgage loan is secured by a borrower’s home, but in other ways it is very different.
The Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program requires borrowers to be at least 62 years of age and have a sufficient amount of equity in their homes.
The HECM allows borrowers to tap into that equity in their home. No monthly mortgage payments are required and any existing mortgage loan is paid off using the proceeds from the reverse mortgage loan. The amount of money available depends on the borrower’s age, home value, and current interest rates.
Borrowers can receive the money through monthly payments, a lump sum, through a line of credit, or some combination of these options. The payment form will depend on whether the borrower chooses a fixed or adjustable interest rate.
Which is right for me?
The reverse mortgage program typically has fewer requirements for prospective borrowers. Credit history and income generally aren’t as restrictive in the application process as they are for “forward” mortgages, which could be a big advantage for people on a fixed income.
Another key difference has to do with loan repayment. Reverse mortgage borrowers are not required to make monthly mortgage payments on their home. However, the loan becomes due when the borrower passes away or leaves the home. At that point, the loan must be repaid in full.
Unlike a traditional loan, reverse mortgages are non-recourse, meaning that a borrower will never owe more than the value of their home —a comforting aspect of the loan in times when home values have declined.
While reverse mortgages offer these great features, this type of loan isn’t for everyone. In order to qualify, you must meet the age requirements and have a sufficient amount of equity in your home. Like with any mortgage, you’re required to keep the home in good condition and stay current on taxes and insurance.
At the end of the day, if you’re looking to remain in your home and have access to the equity you’ve built in your home, a reverse mortgage may bea great option.
Tags: forward mortgage, reverse mortgage, reverse mortgage types
Posted in Blog | No Comments »
April 17th, 2012 by Michael Seals
Using a Reverse Mortgage to Purchase a New Home
While a reverse mortgage has traditionally been used as a way to remain in your home, borrowers can also use it to purchase a new primary residence under the Federal Housing Administration’s (FHA) Home Equity Conversion Mortgage (HECM) program.
Released in 2009, the HECM for Purchase Program allows the borrower to use the proceeds of a reverse mortgage to buy a new primary home in a single transaction.
Borrowers often consider this option if they are looking to downsize or relocate to a different part of the country so that they can age in place closer to family, or in a residence that is more suitable for retirement living.
How it works
In the example of a 67-year-old couple who wishes to buy a new primary residence valued at $300,000, a HECM for purchase could be a good option. The loan amount and proceeds will look something like this:
- Loan amount: $194,400
- Total settlement costs: $13,973
- Loan proceeds: $180,427
- Cash required to close: $119,573
- Interest Rate: 4.5%
The borrower can meet the down payment requirement through the sale of a previous home or personal funds, and the rest of the home price will be financed through the HECM for purchase.
This example is based on the age of the youngest borrower, a fixed rate of 4.50%, an appraised value of $300,000, origination charges of $5,000, a mortgage insurance premium of $6,000 other settlement cost of $2,973, a mortgage payoff of $300,000, amortized over 204 months, with total finance charges of $332,856 and an annual percentage rate of 6.12%. Interest rates may vary.
The borrower is not required to make any monthly mortgage payments. However, they must continue to meet the obligations of the loan, such as remaining in the home as the primary residence, paying required property taxes and homeowners insurance, and maintaining the home according to FHA requirements.
Eligibility requirements of a HECM for Purchase
As with all reverse mortgage products, the borrower must be at least 62 years old. The purchased home must be a primary residence occupied within 60 days of the loan closing.
There are several other eligibility requirements:
• Property must be a single family home, 2-4 unit dwelling or an FHA approved condo
• The difference between the purchase price of the new home and the HECM loan proceeds must be paid in cash from qualifying sources such as the sale of prior residence, home buyer’s other assets or savings
• The borrower must complete a HUD-approved counseling session
Newly constructed homes are eligible as long as the property is habitable and a certificate of occupancy has been issued.
Is the HECM Purchase a good fit for me?
Whether you’re looking to move into a new home in a warmer climate or live closer to your family, the HECM for Purchase Program allows you a safe way to age in place in a home that is suited for your retirement needs.
The cost of purchasing a home in some retirement hot spots has dropped dramatically over the last few years. In states such as Florida, Arizona and California, home values are down an average of 48% according to the CoreLogic home price index.
These may be places to look for a new property that will allow for you to relocate through a reverse mortgage for purchase.
FHA-insured reverse mortgages are non-recourse loans, so if the loan exceeds your home’s value, you or your heirs will never be required to pay more than what the home is worth when the loan is repaid.
Have additional questions about whether the HECM for Purchase Program is right for you? Contact us today by calling us at (800) 976-6211 or sending us a message via our Contact page.
Tags: hecm, HECM for purchase, hecm for purchase program
Posted in Blog | No Comments »
April 12th, 2012 by Michael Seals
The Internet is a great resource for finding out more about reverse mortgages, and using a calculator to see how the loan might best fit your situation is a good place to start.
Why Should I Use a Reverse Mortgage Calculator?
If you’re thinking about getting a reverse mortgage, a calculator can show if you’re eligible and how much you may qualify for.
There are plenty of reverse mortgage calculators available on the web, including the one on our website. This calculator will ask for:
- Your age
- Estimated home value
- Amount you owe on your home
- Your address (including zip code)
- Your telephone number
- Your name
Once you’ve entered this information, our calculator generates a table breaking down how much you might be eligible to receive through the different products available. Most lenders will offer a range of loan options that include both a fixed-rate or adjustable-rate reverse mortgage.
While fixed-rate reverse mortgage loans offer less flexibility, only allowing borrowers to receive their loan proceeds in one lump sum, they do offer a stable, locked-in interest rate, and the calculator can show how much you could expect to receive.
Adjustable-rate loans are more flexible and allow borrowers to get their reverse mortgage loan proceeds in a lump sum, monthly payments, or through a line of credit. Some lenders also offer a fairly new reverse mortgage product, the HECM Saver, for homeowners who want to borrow a smaller amount.
Introduced in October 2010, the Department of Housing and Urban Development created the HECM Saver to “provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option,” said David Stevens, the former Federal Housing Administration Commissioner at the time.
Why Didn’t I Qualify?
In order to obtain a reverse mortgage, both you and your spouse must be at least 62 years of age. If one of you is not 62, the reverse mortgage calculator will likely say you do not qualify for the loan.
Borrowers with a large remaining mortgage balance may find that they also do not qualify. In order to obtain a reverse mortgage, borrowers must pay off any remaining mortgage balance using the proceeds from the loan.
Reverse Mortgage Calculators and You
When considering any financial product, it’s important to conduct research using reputable sources, and to consult trusted advisors.
Reverse.org’s reverse mortgage calculator allows you to check your eligibility and is a quick way to get an idea of what this type of loan could look like for you.
If you find yourself with additional questions about your eligibility for a reverse mortgage or how much money you could borrow, please contact us for more information or give one of our trusted advisors a call at (800) 976-6211 for a free, no obligation consultation.
Tags: calculator, costs, eligibility
Posted in Blog | No Comments »
March 27th, 2012 by Mathew Berg
A reverse mortgage can be an extremely beneficial retirement tool for people who are 62 and older and want to tap into a portion of the equity in their home as a way to achieve financial security.
As long as you have enough equity in your home, it is not difficult to qualify for a reverse mortgage loan. However, there are several potential reverse mortgage disadvantages to consider.
Through a reverse mortgage, a borrower has the ability to access a portion of the equity they’ve built in their home. A borrower can receive the reverse mortgage proceeds as a lump sum, in monthly installments, as a line of credit, or a combination.
The borrower can spend the proceeds however he or she wishes, such as completing home repairs, or for any other use. The loan then becomes due and payable when you, the borrower, leave the home or pass away.
Impact on Heirs
Your heirs are responsible for repaying the reverse mortgage loan. If they choose to repay the loan by selling the home, your heirs are protected from ever owing more on the loan than the home is worth. This is a benefit of the mandatory reverse mortgage insurance premium. However, if your heirs wish to keep the home rather than sell it, the loan balance must be paid in full regardless of the property value.
Costs
A reverse mortgage is not without its costs, including upfront fees and mortgage insurance.
Upfront fees are similar to a traditional “forward” mortgage, and will include origination fees paid to your lender, appraisal fee and closing costs. Additionally, there is a mandatory upfront mortgage insurance premium and an annual mortgage insurance fee paid to the Federal Housing Administration (FHA), the agency that insures the loan.
Paying for the required reverse mortgage insurance can be expensive, as it calculated based on your age, current interest rates and your appraised home value (up to a maximum lending limit of $625,500), but it ensures that you and your heirs will never owe more than your home is worth, regardless of property value changes over time.
FHA also guarantees the reverse mortgage payments on the loan, so the borrower can rest assured that payments will come on time as scheduled in the amount agreed upon.
As in any mortgage, the borrower is responsible for paying property taxes and homeowners’ insurance and must keep the home in good repair.
Medicaid Eligibility
Because Medicaid eligibility depends on a beneficiary’s income and assets, it’s important to consider how a reverse mortgage could impact your financial situation. A reverse mortgage loan usually does not affect Medicaid eligibility, but you should consult your financial advisor and appropriate government agencies for any effect on your benefits.
Tags: disadvantages, pros and cons
Posted in Blog | No Comments »
March 23rd, 2012 by Mathew Berg
If you’re wondering how does a reverse mortgage work, you’ve come to the right place.
Reverse.org provides all the reverse mortgage information you need to make an informed decision about whether it’s the right option for you or a loved one. In order to qualify for a Home Equity Conversion Mortgage (HECM), there are certain eligibility requirements that borrowers must meet. For example, borrowers must be at least 62 years or older and have a significant amount of equity in their home.
The size of the loan depends on the homeowner’s age, current interest rates and the lesser of the appraised value of your home, the sales price or the maximum lending limit. This money is tax-free * and can be received in a variety of ways including, a lump sum, line of credit, fixed monthly payments for a set period of months, or fixed monthly payments for as long as the borrower lives in the home. If a borrower chooses an adjustable rate reverse mortgage with a line of credit, the unused portion of the line of the credit grows, increasing access to borrowing power. See our section about how a reverse mortgage works for more information.
Like all mortgages, borrowers are charged an interest rate, which can impact the amount of money you receive from the loan. If you’re interested in how much you can receive, check out our reverse mortgage calculator for a free quote.
In addition to the interest rate, borrowers are subject to reverse mortgage fees. These include origination fees, traditional title fees and other closing costs. which are typical with any type of mortgage product. Additionally, if you obtain a HECM — which is insured by the Federal Housing Administration — the borrower must pay mortgage insurance premiums. See this section of our website for more information about reverse mortgages fees.
We fully understand that a reverse mortgage may not be the best option for everyone. In fact, we’ve compiled a list of pros and cons for our readers to help explain when it may or may not be a good choice.
Before you obtain a reverse mortgage and go through the application process, you must receive counseling from an agency that is approved by the Department of Housing and Urban Development.
Depending on your situation, this session could be provided free of charge, and most agencies offer the option of participating in the session in person or by phone. Learn more about the counseling process here.
Have more questions? Feel free to contact us or check out our frequently asked questions section for additional information.
*Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
Tags: costs, defined, definition, fees, info
Posted in Blog | No Comments »
December 10th, 2011 by Mathew Berg
In the current economic climate if you are an older homeowner having problems paying bills you may think your choices are limited. However there are a number of options available which can provide financial relief and peace of mind. Of course there is the reverse mortgage option which is what this site specializes in discussing and you should educate yourself on the pros and cons of a reverse mortgage, but there are also other reverse mortgage options:
Relocating and Downsizing
One reverse mortgage option is to downsize to a smaller property. Relocating comes with its own headaches and costs. It is an option to consider if the homeowner feels up to the challenge of putting the house on the market, dealing with a moving company, packing and finding a new residence. The homeowner could save money in a house sale by utilizing a flat fee multiple listing service (mls). A flat fee mls will enable the seller to circumvent paying a seller’s agent commission which is around 2.5% of whatever the house sells for. The home seller will still, typically, have to pay the commission for the home buyer’s agent.
Selling and Renting
This option still entails the stress of moving however a lot of the stressors associated with homeownership disappear. Some benefits of renting includes the fact that someone else does the repairs, you can be flexible and switch locations easily if need be, and you’ll be avoiding: mortgage payments, property tax, insurance fees, maintenance, and upgrades. Also keep in mind that there are buildings and communities that cater to renters 55 and up.
Mortgage Refinancing
Refinancing your existing mortgage may lower your monthly payments. It may allow you to pay off your mortgage faster and receive cash out of the equity in your property.
Home Equity Loan or Line of Credit
These products borrow against the value of your home. A loan is distributed and you will receive a lump sum or a line of credit to be drawn upon as needed.
Personal Loan
Personal loans typically have higher interest rates than other types of financing options. They also may be unsecured, meaning no collateral is required.
Tags: counseling, finance options, pros and cons
Posted in Blog | No Comments »
August 29th, 2011 by Mathew Berg
According to a recent AARP study 31.6 percent of seniors have experienced a substantial decline in home values in the past three years, and a fourth have exhausted their personal savings. Overall, more than half of those surveyed age 50+ were not too or not at all confident that they will have enough money to live comfortably throughout their retirement years. One-third of respondents also mentioned that delaying retirement was an option they were considering while two out of five decided that they would likely work part-time during their retirement years. It’s unfortunate that many individuals in these situations consider working or exhausting their personal savings because they are either unaware that a reverse mortgage could help them or they think that the fees are too high to truly consider it an option. However if individuals considering a reverse mortgage compare reverse mortgage fees to costs associated with the alternatives they may find that it’s all relative. Rather than depleting personal savings or retirement accounts they could have tapped into the equity in their home receiving tax-free funds to cover their expenses.
The two most significant closing costs can be:
1. FHA mortgage insurance premium (MIP)
Cost: The initial insurance premium is 2% of the home’s value for the HECM Standard option, and just .01% for the HECM Saver option. Both have an annual MIP that is 1.25% of the mortgage balance.
What is it?: It provides two guarantees: the estate will not be personally liable if the payoff balance exceeds the home’s value (“upside-down”), the FHA will pay out loan proceeds if the lender cannot.
2. Origination Fee
Cost: Maximum of $6,000. The maximum fee set by law is 2% of the first $200,000 of property value and 1% of $200,000 to $400,000 of value up to the max available fee.
What is it?: The origination fee is the lender’s fee.
Tags: costs, fees
Posted in Blog | No Comments »
August 9th, 2011 by Mathew Berg
There is a vast amount of information available on reverse mortgages. When making a decision as big as this one, it is no wonder that many people do their homework. Researching reverse mortgages is good preparation for a required HECM counseling appointment. FHA funds housing counseling agencies nationwide to provide borrowers with information on reverse mortgages through face-to-face or telephone sessions.
HECM counseling covers a range of topics that could affect your decision on whether or not a reverse mortgage is for you. Counseling sessions include discussions on how a reverse mortgage can impact your eligibility for federal and state programs, income tax consequences, impacts on your estate, what types of payments you will be making to other parties and most notably; the other options available to you.
The most important thing that a HUD approved counselor can provide you with is unbiased information on whether or not a reverse mortgage is the right decision for you. The whole purpose of counseling is to educate and empower you in making the correct decision for your financial situation. To find a HECM counselor near you, visit the FHA HECM Roster or call (800) 569-4287.
The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.
Tags: counseling, eligibility, pros and cons
Posted in Blog | No Comments »
|
