What is Reverse Mortgage?
A government-insured loan backed by the Federal Housing Administration also known as a Home Equity Conversion (HECM). With a HECM you may access a portion of your home’s equity and turn it into tax-free cash* if you are a senior homeowner age 62 or older. A reverse mortgage does not require you to make any monthly mortgage payments.** As such, it is often considered a powerful tool to gain financial security during your retirement years. There are credit qualifications and minimal income requirements. Because a reverse mortgage is a non-recourse loan, both you and your children will never have to pay more than the property’s worth in a bona-fide sale.
Reverse Mortgage (HECM) Requirements:
- Minimum age for all applicants is 62
- 1-4 Unit properties including HUD approved Condominiums, PUD’s and manufactured homes meeting HUD standards are considered eligible properties.
- You must occupy your home as your primary residence. Your home must be maintained in a reasonably good condition; and you must continue paying property taxes and homeowners insurance.
Is a Reverse Mortgage right for you?
A Reverse Mortgage may not be practical for those looking for a short term solution. Since a reverse mortgage requires insurance, origination fees and third-party fees that are all financed, a different type of loan may be better for those seeking a short term loan.
Seniors who could benefit from supplementing their income and who wish to remain in their homes in the foreseeable future could see an increase in financial peace of mind and quality of life. You’ve spent your lifetime working hard to build this asset, now it’s time to put this investment to work for you!
How much money is available?
The amount of proceeds you qualify for with a HECM is based on the property value and the youngest borrower. Once all current liens on the property are paid, you can choose a number of different ways to receive cash. You can choose to receive the funds all at once, as a line of credit you can access as you choose, in monthly installments or a combination of any or all of the above.
No matter how you choose to receive the funds from your reverse mortgage, for as long as you live in your home you will never make a monthly mortgage payment.* While no mortgage payments are required under reverse mortgage loans, borrowers will be responsible for maintaining the hazard insurance premiums, real estate property taxes, and home owner’s association fees current as well as expenses for the upkeep and maintenance of the property.
Fixed Rate Cash Lump Sum: Those planning to take the full draw of their reverse mortgage funds in the beginning, such as those paying off their current mortgage or those planning to use the money immediately for other reasons, the fixed rate reverse mortgage will give you a little more security than a line of credit (because of the fixed interest rate). However, you could potentially get less money with the fixed rate option if you do not need to use your entire benefit to pay off any existing loans or liens. With recent improvements the fixed rate option has greatly reduced in cost.
Adjustable Rate Credit Line: A reverse mortgage line of credit cannot be closed or frozen, unlike Home Equity Lines of Credit offered by your local bank. The line also increases in availability each month based on the unused portion. In addition, the line of credit may also enable you to access a greater benefit than the fixed rate reverse mortgage. Sometimes referred to as an “annuity mortgage”, the Tenure Payment Plan allows the proceeds to be made available to you in monthly installments that are guaranteed for life.
Safeguards for Reverse Mortgages
One of the first steps to conduct is mandatory independent counseling which may take place in person or by phone. This is a private session during which the role of the counseling agency is to review your unique financial situations and explore any alternatives that may be available. Available alternatives may include selling your home and downsizing, available city or state grants, or other options that may be available to you.
Although this is not a requirement of the reverse mortgage loan, in order to perform a budget analysis counselors are required to ask borrowers about income, assets, debts and monthly living expenses. Once this session is completed you will be provided a counseling certificate which you will need to sign and deliver to your lender of choice.
A list of counseling agencies will be provided to you for your selection. It is only after a lender receives an application and signed counseling certificate will they begin the processing of your reverse mortgage loan. Please review HUD’s guidelines to Prepare for Counseling.
The next steps…
Speak to a mortgage advisor from Lenox/Weslend Financial or request a quick quote, all at no obligation. We’ll be happy to speak with you at a time that is convenient for you to help determine whether a reverse mortgage is the right option for you. Our homes are among the biggest financial commitments that we make. You’ve taken good care of your home, and now your home can help take care of you-with substantial tax-free money.* For many seniors, a reverse mortgage has helped with financial peace of mind right when they need it most.
*Consult your tax advisor regarding loan proceeds that are tax free.
** While no mortgage payments are required under reverse mortgage loans, borrowers will be responsible for maintaining the hazard insurance premiums, real estate property taxes and home owner’s association fees current as well as expenses for the upkeep and maintenance of the property.
What is the difference between a home equity loan and a reverse mortgage?
Unlike a home equity loan, a reverse mortgage has no monthly mortgage payment requirements. With a reverse mortgage, you are the one receiving a monthly payment should you choose the monthly payment option. Speak with your Lenox/WesLend Financial mortgage advisor about the right payment options for your situation. Other payment options include cash at closing, line of credit or a combination thereof.
Do I still own my home with a reverse mortgage?
Yes, a reverse mortgage is just like any standard mortgage and you will remain 100% on title. You can sell your home, refinance the loan, or pay the loan off at any time with no penalty whatsoever.
How do I qualify?
Borrowers must be at least 62 years of age, have sufficient equity in the home and occupy the home as their primary residence. There is no monthly mortgage payments required, however there are minimal income and credit qualifications required. Eligible properties include 1-4 unit properties including HUD approved Condominiums, PUD’s and manufactured homes meeting HUD standards.
As part of the borrower(s) responsibilities, they must maintain the home in good living condition, and continue paying property taxes and homeowners insurance.
Are there limitations on how I can spend my reverse mortgage proceeds?
Reverse mortgage borrower(s) have the freedom to do whatever they wish with the money. Common uses of reverse mortgage proceeds are to increase quality of life, pay off medical bills, fund home improvements, travel or make ends meet.
How is the loan repaid?
A reverse mortgage must be paid in full when the last surviving borrower dies or sells the home. Until a loan maturity event, you are not required to repay the loan for as long as you live in your home. Most homes are sold to repay the reverse mortgage upon maturity. Any remaining difference between the sale price and the unpaid balance of the reverse mortgage (equity) is distributed to the borrower, or to borrower’s heirs/estate. A reverse mortgage loan can be paid in other ways such as refinancing the reverse mortgage to a conventional mortgage loan, if the heirs choose to keep the home instead.
What happens if I owe more than what my home is worth, will my heirs inherit the liability?
If it came to pass there was no equity, your heirs are NOT responsible for a debt greater than what the house is worth. The only thing that can be used to pay off the home is the home…no other assets can be touched and since FHA insures the loan, FHA would cover the shortfall if there was no equity remaining in the home.
How do I start?
Our goal is to provide you, along with any of your trusted advisors with all the reverse mortgage information you’ll need to make an informed decision. At Lenox/WesLend Financial, we’ll be happy to speak with you at a time that works for you to help you navigate whether a reverse mortgage is right for you!
Give us a call at 888.595.3669 or request a free quick quote.
*Consult your tax advisor regarding tax free status of loan proceeds.