But now…

With home prices still under pressure and fears of a double-dip recession rampant, reverse mortgages no longer look so safe. Moreover, new government underwriting guidelines are likely to crimp the market’s stellar growth.

According to a survey by the National Reverse Mortgage Lenders Association, of the year-to-date loans booked by the three largest lenders, had the October 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed.

Declining home prices have had a major impact on the reverse mortgage industry and seniors who are considering their financial options. Currently, a potential customer doesn’t know if a reverse mortgage will work for them until the appraisal comes in.
Once homeowners get an appraisal, they may find out that it was appraised for less money than expected; they may not receive enough reverse mortgage proceeds to pay off an existing mortgage or to handle another financial issue.

During these tough times, reverse mortgage servicers also have to keep an eye on borrowers to make sure they are maintaining their real estate tax payments and home insurance payments. On a traditional mortgage, these payments are often escrowed and the servicer automatically pays them. But the borrower is responsible for making these payments on a reverse mortgage.

As a result of weak home prices it is difficult for people to know what their homes are worth and if a reverse mortgage will get them enough proceeds.
There is hope, however, that the economy and consumer confidence will recover. As home prices and retirement assets stabilize, we’ll get back into a healthy phase of growth, people will reassess their retirement/home situations, and will include reverse mortgages in their financial plans.

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You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. They will also discuss provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your needs. You can search online for a HECM counselor.

Borrowers can choose a fixed rate or an adjustable rate and fixed rates sound great, but they are what is called a “closed end instrument” and require the borrower to take the entire loan at the very beginning of the transaction.

For borrowers who are paying off an existing mortgage and need all their funds to pay off the current loan, this is no problem.  For a borrower who has no current lien on their property or a very small one, this would mean that they would be forced to take the entire eligible mortgage amount on the day the loan funds.

This might give a borrower $200,000, $300,000 or more in cash from the very first day that they do not need at the time and on which they are accruing interest. This can also have an adverse affect on some seniors with needs-based programs.

Seniors on Medicaid and some other needs-based programs would impact their eligibility by having the sudden addition of the liquid assets and the senior would wind up funding their own Medicaid with the equity in their home.

For these seniors, a careful consultation with family members and a financial counselor is advised to be certain that they chose an option such as the line of credit where funds can be made available to them during times of need, but they never have excess funds sitting in accounts to affect their eligibility.

A borrower who is planning on using only a portion of their funds monthly need not pay interest on the entire amount from the very start, eroding the equity unnecessarily fast.  An adjustable rate will accrue interest at a much lower rate at today’s rates, but has a 10% cap and can go much higher if rates rise in the future. However, the adjust rate program allows for more options for borrowers to receive their money.

They can choose a lump sum; a line of credit against which they can draw at any time and which cannot be frozen like many of the bank Home Equity Lines of Credit (HELOC’s) are going through now and which grows on the unused portion annually; a monthly payment for a set term or for life; or a combination of all of the options. The adjustable rates are currently much more flexible to meet borrowers’ needs.

One of the things that can determine the amount for which borrowers will ultimately qualify is the rate at which the loan accrues interest.  When the margins on the adjustable rates were lower and the fixed rate was higher, the adjustable rates gave borrowers more money in their pockets in the form of eligibility.

Now, most borrowers we run through the reverse mortgage calculator receive more money on the fixed rate program. This is extremely important to know if you are trying to get as much as possible to pay off an existing lien. It also means that the higher the margin, the less money the borrower will receive and the faster interest on the loan will accrue.

So the thing to look for in a reverse mortgage here is definitely the rate on a fixed rate or the margin on an adjustable rate that is being quoted.

What is a reverse mortgage?

A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income—without having to sell their home, give up title to it, or make monthly mortgage payments. The loan becomes due when the last borrower (s) permanently leaves the home.

* Consult Financial Advisor. Not all products available in all states.

How is a reverse mortgage like a home equity loan? How is it different?

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. However, with a reverse mortgage you do not make any required monthly mortgage payments for as long as you stay in the home.

Can my current income influence my ability to get a reverse mortgage?

No. Since reverse mortgage borrowers need not make monthly repayments, there are no income qualifications.

What are the advantages of a reverse mortgage?

There are many. Here are a few of the most significant:

• Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.
• Stay in your home. It allows you to remain in your home and retain home ownership.
• No monthly mortgage payments required. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until
  you permanently move out of the home.
• Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
• Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.

* Consult Tax Advisor

I’ve heard that with a reverse mortgage the lender would own my home. Is this true?

It’s absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.

Because the homeowners retain title, they remain responsible for the payment of property taxes, hazard insurance, and maintaining the home in reasonable condition – just as they would with a standard first mortgage or home equity loan.

Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?

Yes. Refinancing can make sense if your home either increases in value, the interest rates drops or the maximum lending limit increases. Keep in mind that when deciding to refinance a reverse mortgage, it is important to compare the amount of benefit versus the cost of the loan before making this decision. The amount of benefit received should be twice the amount of the cost to refinance the loan.

Can a reverse mortgage lender take my home away if I outlive the loan?

No they cannot. And the loan is not due at that time either. In fact, you don’t need to repay the loan as long as you or another borrower continues to live in the house as the primary residence and keep the taxes paid and hazard insurance in force.

How do you determine the amount of cash I am eligible for?

The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the appraised value of your home and FHA’s lending limits for your area. In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

Are there any limits on how I use the money I receive from a reverse mortgage?

You can use the money for virtually anything you choose, from daily living expenses, home improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a “financial security blanket,” in case unexpected expenses arise.

It is important to know that with adjustable rate mortgages, an increase in the interest rate could affect the amount of money available to borrow in the future and the amount of money owed when the loan becomes due.

Is there a choice in how I receive the cash from my reverse mortgage?

Most definitely. With most reverse mortgages you have a wide range of payment options, one of which may be ideal to meet your financial needs.

• You can choose to receive the money all at once, as a lump sum.
• You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as a principal residence.
• You can choose to receive equal monthly payments for a fixed period of months.
• You can get a line of credit; which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
• ou can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Or, finally, you can choose a combination of the above.

Who can qualify for a reverse mortgage?

Seniors 62 years of age or older may qualify. There are virtually no income or credit qualifications.

I still owe money on a first or second mortgage. Can I still get a reverse mortgage?

Yes. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage. The funds you would receive from the reverse mortgage would be used to pay off whatever existing mortgages you have on the property.

Can I get a reverse mortgage on a second home or resort property I own?

Unfortunately no. Reverse mortgages may only be taken out on your primary residence.

What kinds of homes are eligible for a reverse mortgage?

First and foremost, the reverse mortgage must be on the borrower(s) primary residence, that is, where they live most of the year. Most reverse mortgages are taken on single family, one-unit homes. Some programs also accept two-to-four unit buildings that are owner-occupied. Some programs offer reverse mortgages on condominiums and manufactured homes built after June 1976. Mobile homes and cooperatives are generally not eligible for a reverse mortgage. Click here to contact the Financial Freedom representative nearest you to determine if your home is eligible.

Would a home that is in a “living trust” be eligible for a reverse mortgage?

Yes. In most cases a homeowner who has put his or her home in a revocable living trust can usually take out a reverse mortgage. A review of the trust documents would be conducted by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.

Are all reverse mortgages the same?

No, below are the basic types of reverse mortgages:

1. Federally-insured reverse mortgages. Known as Home Equity Conversion Mortgages (HECM), they are insured by the U.S. Department of Housing and Urban Development (HUD). They are widely available, have no income requirements, and can be used for almost any purpose. (For more on HECM reverse mortgages, click here.)
2. Government-sponsored reverse mortgages. A Home Keeper® is Fannie Mae’s conventional market alternative to the Home Equity Conversion Mortgage (HECM). It is a government-sponsored enterprise program and works like a HECM loan in many ways. However, a Home Keeper® reverse mortgage has been discontinued as of September 2008 due to new legislation that increases the limit of reverse mortgage loans.

When will I have to pay the principal and interests cost of this loan?

Your reverse mortgage loan becomes due when one or more of the following conditions occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months; (d) the borrower fails to pay property taxes or hazard insurance; (e) the borrower does not maintain the home in reasonable condition.

What is a non-recourse loan?

A non-recourse loan is a home loan in which a lender may look only to the value of the home for repayment of the loan; no other assets may be attached if the loan balance grows beyond the subject property home value.

If I take a reverse mortgage, will I still have an estate that I can leave to my heirs?

When you sell your home or no longer use it as your primary residence, you or your estate must repay the lender for the cash received from the reverse mortgage, plus interest, monthly service fees and any other accrued costs. Any remaining equity belongs to you or your heirs. It’s important to remember that you can never owe more than the fair market value of the home when it is sold. None of your other assets will be affected by your reverse mortgage loan.

When the loan is due, will I ever owe more than my home is worth?

If the borrower or heirs/estate do not wish to retain ownership of the property upon loan maturity, the borrower or heirs/estate will not be required to pay more than the home is worth upon loan maturity.

In the event the borrower or heirs/estate decide to keep the home upon loan maturity, the borrower or heirs/estate will be responsible for the full amount owed.

What fees are involved in a reverse mortgage?

Most reverse mortgages have an origination fee, third party closing costs (such as appraisal, title and escrow), insurance, and a monthly servicing fee. These charges can be paid from the proceeds of the reverse mortgage, resulting in no immediate burden to the borrowers; the costs are added to the principal and paid with interest when the loan becomes due.

Are reverse mortgage interest rates fixed or variable?

Most reverse mortgages extended to seniors to date have variable rates that are tied to a financial index and will vary according to market conditions. In addition, Financial Freedom offers a fixed rate HECM program.

What is “TALC” and why should I know about it?

TALC is short for “Total Annual Loan Cost.” It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another. If you are considering a reverse mortgage, be sure to ask the lender and counselor to explain the TALC rates for the various reverse mortgage products.

• Eliminate existing mortgage loan payments
• Payoff credit card debt
• Supplement retirement income
• Help pay for medical and prescription expenses
• Pay for in-home care, long term care insurance, Medicare supplement
• Use funds for home repairs or modifications
• Use for wealth redistribution, estate planning or make a living charitable donation
• Lifestyle enhancement
• Travel

The Basics of a Reverse Mortgage

Reverse mortgage loans enable seniors to convert their home’s equity into tax-free cash, all while retaining the occupancy and ownership of their home. Unlike a traditional mortgage, there are no monthly payments to be made and repayment of the loan is deferred until the borrower is no longer living in the home. At the time the borrower is no longer occupying the property, the loan becomes due and it must be paid in full, including interest and financed closing costs. Because no monthly payments are made, the loan amount owed grows over time and the equity that remains after selling the home and paying off the loan grows smaller.

With a reverse mortgage, your loan will NEVER be more than the value of your home.

With a reverse mortgage, borrowers continue to own their homes and are required to stay current with property taxes, insurance, and needed repairs. A reverse mortgage must be the only mortgage on the property, if there is an existing mortgage, it must be paid off in full with the proceeds from the reverse mortgage. As the home appreciates and the borrower grows older the borrower may qualify for more money, and the reverse mortgage may be refinanced against the increased equity.

Reverse Mortgage Eligibility

Borrower Requirements

• All borrowers must be 62 years old and occupy the property as their primary residence at least 6 months of the year
• You must own the home outright, or be able to pay the loan off in full with the proceeds of a reverse mortgage
• You are required to attend a HUD Counseling Session either face to face or by telephone

These requirements apply to all individuals on the title

Property Requirements

Eligible properties include:

• Single family one-unit dwelling
• 2-4 unit owner occupied dwelling
• some condominiums and planned unit developments
• some manufactured homes

For more information or to get detailed answers relating directly to your situation, please contact us now.

If you die, then your reverse mortgage loan becomes due for payment. Your heirs need to pay off the dues if they want to keep the home which has the reverse mortgage on it. Or the lender will have to sell the home in order to get back the money.
But there are very few times when it makes sense to consider an early payoff on an existing reverse mortgage. This is because you are not making any monthly payments in the case of a reverse mortgage. loan In fact, the lender pays you monthly while you continue to enjoy living in your own home.

A reverse mortgage is a nonrecourse loan. If you move from your home or sell it off then the reverse mortgage becomes due. You never have to pay more than the value of the home, even if the loan amount is larger. This tends to protect you and your heirs from owing more than the home is actually worth.

So the answer to the question is; it does not make much sense to pay off a reverse mortgage unless you are selling the home, or are moving to a different home.

• Eliminate existing mortgage loan payments
• Payoff credit card debt
• Supplement retirement income
• Help pay for medical and prescription expenses
• Pay for in-home care, long term care insurance, Medicare supplement
• Use funds for home repairs or modifications
• Use for wealth redistribution, estate planning or make a living charitable donation
• Lifestyle enhancement
• Travel