Understanding Reverse Mortgages
December 11th, 2009 Posted in Mortgage
Seniors today often live with a great deal of financial uncertainty. The retirement they imagined may not be consistent with the reality they face.
Incomes are flat or declining, living and medical expenses are higher than ever and few income boosting alternatives exist. Even those who have heard about Reverse Mortgages may be unsure about how they work or what questions to ask. As they search for information, they often turn to their financial institution for guidance and information. By becoming familiar with the product, you can be an even more valuable resource to your clients providing them with income supplementing alternatives to drawing down assets.
What is a Reverse Mortgage?
A Reverse Mortgage is a special type of loan that allows a homeowner to convert a portion of the equity in their home into cash they can access. The funds are not taxable to the homeowner and typically don’t interfere with eligibility for Social Security or Medicare benefits. (However, in the federal Supplemental Security Income program, beneficiaries must keep their liquid resources under certain limits.) The customer retains title to the home as well as right to any appreciation in home value when the loan terminates after it is paid off. The loan remains in force until the last titleholder dies, permanently leaves the home or sells the property; the borrower can’t be forced to sell or move by the lender. The loan may be repaid at any time. But unlike a traditional home equity loan or second mortgage, no monthly payments are required. Instead of putting further pressure on an already stretched budget, a Reverse Mortgage can free a senior homeowner of monthly debt obligations.
Most Reverse Mortgages today are Home Equity Conversion Mortgages (HECMs) and are FHA-insured and guaranteed. Because HECMs are subject to FHA lending limits, proprietary products have also been developed to help homeowners with properties in excess of the FHA lending limits.
Who qualifies for a Reverse Mortgage?
All titleholders must be 62 or older and own a home with some equity. There are no income or credit qualifications. Existing mortgages or liens must be paid off, but are often paid with proceeds from the Reverse. The homeowner must also remain current on insurance and property taxes, but these can also be paid with proceeds from the Reverse.
How can a borrower use the money?
The funds can be used for any purpose from making ends meet to living retirement dreams. The top reasons for funds used given typically by borrowers are:
- Paying off debts, primarily mortgage and credit cards
- Home repairs and remodeling
- Living expenses
- Travel
- Health care or long-term care
- Easing the financial burden on children
- Education
- Hobbies
- Escalating property taxes
The amount available depends on the borrower’s age, the value of the home, interest rates and local FHA lending limits. Older borrowers can receive a higher percentage of their equity than younger borrowers. Funds can be received in a lump sum, a monthly payment or a line of credit.
As with most any loan product, there are origination fees and closing costs, but they can be paid from the proceeds of the Reverse Mortgage. HECM loans also have a charge for the FHA’s Mortgage Insurance Premium (MIP). There are usually no out-of-pocket costs to the borrower.
What consumer protections are in place?
Reverse Mortgages are non-recourse consumer loans – the loan payoff can never exceed the value of the home. To get a Reverse Mortgage, the customer must attend a mandatory counseling session and review their financial situation with a trained, professional Reverse Mortgage counselor. Many of the counselors are certified by the AARP. The counselor ensures that they understand the transaction, the costs and their other alternatives.
If you have questions regarding Reverse Mortgages or how they may provide life-changing benefits to your clients, contact MLS Reverse Mortgage at 1-888-888-4834 or www.mlsreversemortgage.com.
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About Author
Mike Borba (President of MLS Reverse Mortgage) is a broker that has been in the mortgage and real estate field since 1980. Toll Free (888) 888-4834. Visit our website. Read more of our articles online. Read frequently asked reverse mortgage questions.
19 Responses to “Understanding Reverse Mortgages”
By Nick on Dec 11, 2009
Nick,
As long as your great grandmother can access enough equity, not only will she be able to payoff her debts, but she also may be able to set up a monthly income stream for the rest of her life, and /or a line of credit that will have a growth factor that she could access at anytime for any need. As far as paying back the Reverse Mortgage, there are no monthly payments, and the Reverse Mortgage becomes due when one of the following happens, 1, she sells the house, 2, the home is no longer is her primary residence, meaning that if she were to be out of the house for a consecutive 365 days(1 year) the home is no longer considered by the lender to be her primary residence, and 3, when she passes away. Any equity left after paying back the Reverse Mortgage is hers to keep, or in the event she passes away the equity goes to the estate. Her children can inherit the house, all the bank cares about is that the Reverse Mortgage is paid back. Lets say the house is worth $200K and the amount owed on the Reverse Mortgage is $100k, her family can get a $100k mortgage to payoff the Reverse Mortgage and thus retain ownership of the home.
Nick, from the time a Reverse Mortgage application is signed, to the time you receive the funds can be between 3-5 weeks. There is mandatory 3rd party counseling(30-45 minute phone call with a HUD approved Reverse Mortgage Counselor),appraisal, loan processing, and the closing. You also have 3 days after the final paperwork is signed to change your mind and cancel the transaction.
I work for one of the top 5 Reverse Mortgage Lenders in the country, and would be able to assist you. More than working with a reputable company, you want to make sure you deal with a reputable person, for instance there a 3 different Home Equity Reverse Mortgages (HECM) known as HECM 150, HECM 125 and HECM 100. You only want to talk about the HECM 100 as it is the lowest interest rate and will allow for the most access to equity. With a higher value home typically over $600K there are Jumbo Reverse Mortgages which may or may not be more suitable to your needs. Both the HECM 100 and the Jumbo products can be done with either a variable rate or fixed rate, and depending on the what the needs are will determine which is best. If you have any other questions feel free to e-mail me, and check out my website for more info.
Stephen
Reverse MortgageSpecialist.com
By Pat on Dec 11, 2009
The money is repaid from your estate when you pass. Depending on the contract it could just be the house is forfeited an no other monies owed. I am surprised you received a reverse mortgage having refinanced, but it is done now.
Make sure the bank will let you sell for the amount owed. I doubt they will, it should be stated on the reverse mortgage.
By Scrapbooking on Dec 11, 2009
lol! he was talking about his ma’s deck being to overpriced hahahha!
By Disease Information Health Tips on Dec 11, 2009
hahaha i love how he throws something at him while he’s on the ground
By Scrapbooking on Dec 11, 2009
Lol he got owned.
By Soli.taire on Dec 12, 2009
ok – let's say you're 70 years old, and you own your house outright, but have no $$$. Let's say that the house is worth $100,000.
So a reverse mortgage says, the mortgage company will pay you $1000 a month until you die. After you die, the mortgage company gets your house.
This gives you an income, and also a place to live until you die.
Down side, your heirs don't get your house.
Also, the % that they give you back isn't really good, because they want to cover their downside, in case you live to 100.
By car reviews on Dec 12, 2009
/F – ne guyz wanna chat? im bored and horny! T
By Health Tips and Advice on Dec 12, 2009
“ur getting robbed”!
By car reviews on Dec 12, 2009
hahah hilarious
By Donna Lu on Dec 13, 2009
You've gotten good answers, but let me bring it down one more level…
Your parents pledged the home to get the Reverse Mortgage. The bank is now first in line with rights to the home. Anyone else's rights to the home would fall in line behind the bank's.
Your Mother cannot give away something she has already given away. She gave the bank the right to the house. It's no longer hers to give away again.
It would be like selling a car and then showing up at the new owner's house, grabbing the car from the driveway, and handing it off to someone else…
Or buying dinner from the A&P, getting everyone around the table, and having the grocery man come into the kitchen and take the food back before you had a chance to eat. When you bought the food, you expected you would have dinner. You gathered everyone around the table because you knew you had dinner. You would never expect the store to come and take dinner back, but that's what you're trying to do with the Reverse Mortgage.
The bank acted in a certain way based upon your mother's pledge of the home. They loaned money and sold the loan to an investor. Your mother accepted the money and the right to live in the home under those circumstances. The technical name for trying to get the house back after using the benefit is "stealing."
And, BTW, your mother has no "heirs" until she dies.
By Anonymous on Dec 14, 2009
its like calling the cops that you gonna do something
By zmamasita on Dec 14, 2009
My peers are partly correct.
a Reverse mortgage is exactly what it sounds like; instead of the
borrower making monthly payments to the lender after getting
a lump sum payment……the lender lends the borrower a fixed monthly payment. NO payment is due to the lender till the
end of the mortgage when either…….
the borrower has died and the estate does not want the house
so the lender forecloses.
or……….the insurance if there is any, pays back the
lender and the house is debt free to the estate.
or, if the borrower lives long enough, at the end of the
mortgage life [loan], he needs to re-finance
the home so that the lender is paid back.
By Tyrone P on Dec 14, 2009
No, I see why you think nobody will understand. A reverse mortgage is only for the elderly who already own a home so why they would be wanting to pay a down payment is the main confusion.
By Desktop Wallpaper on Dec 14, 2009
that’s is the scariest thingy
By Health Tips and Advice on Dec 15, 2009
what the