Thursday, July 29, 2010
Benefits of Reverse Mortgages for Seniors
Americans are eligible for a reverse mortgage, provided that they are over 62 years of age. This means that a retired homeowner can receive a cash lump sum and/or a monthly retirement income for the remainder of their life. Whilst someone who is younger and in good health appears to have most to gain, more senior applicants will receive a higher monthly payment as the figures are calculated by an actuary in a similar way to a pension annuity. The revenue is treated as a loan advance and is not taxable.
State benefits may top up retirement income, but this is rarely sufficient. Home equity release schemes have grown in popularity as a means of boosting income. Read onAre Home Equity Release Schemes a Good Idea?
State benefits may top up retirement income, but this is rarely sufficient. Home equity release schemes have grown in popularity as a means of boosting income. Read onBuying/Selling a Home
It is now possible to define how much equity should be surrendered in exchange for a monthly retirement income. This means that a homeowner is able to earn extra cash and still leave money for loved ones in their will. This helps to ease the worry of elderly people who need more money, yet are concerned about the future financial well-being of their closest family members. No matter what happens, the homeowner will never owe more than the value of their property - important when house prices are falling.
Important Equity Release Scheme Considerations
A reverse mortgage for seniors can help cover essential household bills and make life considerably easier from a financial perspective. However, it is essential to seek guidance from a financial expert because monthly payments are likely to affect a homeowner's eligibility for certain state benefits. It will also reduce or eliminate the family home from that person's estate meaning that less money is available for dissemination to family members. Always consider both the pros and cons before proceeding.
Western Pacific Home Loans- Reverse Mortgages
A SUMMARY OF AVAILABLE PLANS
FHA-Insured
This plan offers several payment options:
Monthly loan advances for a fixed term, or for as long as you live in the home,
A line of credit, or
Monthly loan advances plus a line of credit.
This type of reverse mortgage is not due as long as you live in your home. With the line of credit option, you may draw amounts as you need them over time. Closing costs, a mortgage insurance premium, and, sometimes, a monthly servicing fee are required. Interest is at an adjustable rate on your loan balance. Interest rate changes do not affect the monthly payment, but rather how quickly your loan balance grows.
The FHA-insured reverse mortgage allows you to change the way you are paid at little cost. This plan also protects you by guaranteeing that loan advances will continue to be made to you if a lender defaults. However, the downside of FHA-insured reverse mortgages is that they may provide smaller loan advances than lender-insured plans. Also, loan costs may be greater than with uninsured plans.
The most widely available plan is the Federal Housing Administration's Government-insured Home Equity Conversion Mortgage (HECM) program. To qualify for an HECM loan, homeowners must be at least 62 and live in a single-family home or condominium that is their principal residence. Under this program, the amount of equity homeowners may borrow against depends on where they live, as well as on prevailing interest rates.
For people who have more expensive homes or who need to borrow more, there are alternatives. A program from the Federal National Mortgage Association grants larger reverse mortgages on home equity.
TIP: Most private reverse mortgages are not insured. Only the strength of the lender backs whatever promises it may make as to payments and other terms. So if you are looking to a reverse mortgage for future income, rather than a lump sum up front, you are better off in a federally insured program.
Counseling is required before homeowners can apply for an HECM loan. This counseling allows homeowners to discover whether a reverse mortgage is really the best answer to their cash-flow problems.
Lender-Insured
These reverse mortgages offer monthly loan advances or monthly loan advances plus a line of credit for as long as you live in your home. Interest may be assessed at a fixed rate or an adjustable rate, and additional loan costs can include a mortgage insurance premium (which may be fixed or variable) and other loan fees.
Loan advances from a lender-insured plan may be larger than those provided by FHA insured plans. Lender-insured reverse mortgages also may allow you to mortgage less than the full value of your home, thus preserving home equity for later use by you or your heirs. However, these loans may involve greater loan costs than FHA insured, or uninsured loans. Higher costs mean that your loan balance grows faster, leaving you with less equity over time. Some lender-insured plans include an annuity that continues making monthly payments to you even if you sell your home and move.
TIP: The security of these payments depends on the financial strength of the company providing them, so be sure to check the financial ratings of that company.
Annuity payments may be taxable and affect your eligibility for Supplemental Security Income and Medicaid. These review annuity mortgages may also include additional charges based on increases in the value of your home during the term of your loan.
Uninsured
This reverse mortgage is dramatically different from FHA and lender-insured reverse mortgages. An uninsured plan provides monthly loan advances for a fixed term only—a definite number of years that you select when you first take out the loan. Your loan balance becomes due and payable when the loan advances stop. Interest is usually set at a fixed interest rate and no mortgage insurance premium is required.
TIP: If you consider an uninsured reverse mortgage, think carefully about the amount of money you need monthly, how many years you may need the money, how you will repay the loan when it comes due, and how much remaining equity you will need after paying off the loan.
If you have short-term but substantial cash needs, the uninsured reverse mortgage can provide a greater monthly advance than the other plans. However, because you must pay back the loan by a specific date, it is important for you to have a source of repayment. If you are unable to repay the loan, you may have to sell your home and move.
Western Pacific Home Loans- Reverse Mortgages
This plan offers several payment options:
Monthly loan advances for a fixed term, or for as long as you live in the home,
A line of credit, or
Monthly loan advances plus a line of credit.
This type of reverse mortgage is not due as long as you live in your home. With the line of credit option, you may draw amounts as you need them over time. Closing costs, a mortgage insurance premium, and, sometimes, a monthly servicing fee are required. Interest is at an adjustable rate on your loan balance. Interest rate changes do not affect the monthly payment, but rather how quickly your loan balance grows.
The FHA-insured reverse mortgage allows you to change the way you are paid at little cost. This plan also protects you by guaranteeing that loan advances will continue to be made to you if a lender defaults. However, the downside of FHA-insured reverse mortgages is that they may provide smaller loan advances than lender-insured plans. Also, loan costs may be greater than with uninsured plans.
The most widely available plan is the Federal Housing Administration's Government-insured Home Equity Conversion Mortgage (HECM) program. To qualify for an HECM loan, homeowners must be at least 62 and live in a single-family home or condominium that is their principal residence. Under this program, the amount of equity homeowners may borrow against depends on where they live, as well as on prevailing interest rates.
For people who have more expensive homes or who need to borrow more, there are alternatives. A program from the Federal National Mortgage Association grants larger reverse mortgages on home equity.
TIP: Most private reverse mortgages are not insured. Only the strength of the lender backs whatever promises it may make as to payments and other terms. So if you are looking to a reverse mortgage for future income, rather than a lump sum up front, you are better off in a federally insured program.
Counseling is required before homeowners can apply for an HECM loan. This counseling allows homeowners to discover whether a reverse mortgage is really the best answer to their cash-flow problems.
Lender-Insured
These reverse mortgages offer monthly loan advances or monthly loan advances plus a line of credit for as long as you live in your home. Interest may be assessed at a fixed rate or an adjustable rate, and additional loan costs can include a mortgage insurance premium (which may be fixed or variable) and other loan fees.
Loan advances from a lender-insured plan may be larger than those provided by FHA insured plans. Lender-insured reverse mortgages also may allow you to mortgage less than the full value of your home, thus preserving home equity for later use by you or your heirs. However, these loans may involve greater loan costs than FHA insured, or uninsured loans. Higher costs mean that your loan balance grows faster, leaving you with less equity over time. Some lender-insured plans include an annuity that continues making monthly payments to you even if you sell your home and move.
TIP: The security of these payments depends on the financial strength of the company providing them, so be sure to check the financial ratings of that company.
Annuity payments may be taxable and affect your eligibility for Supplemental Security Income and Medicaid. These review annuity mortgages may also include additional charges based on increases in the value of your home during the term of your loan.
Uninsured
This reverse mortgage is dramatically different from FHA and lender-insured reverse mortgages. An uninsured plan provides monthly loan advances for a fixed term only—a definite number of years that you select when you first take out the loan. Your loan balance becomes due and payable when the loan advances stop. Interest is usually set at a fixed interest rate and no mortgage insurance premium is required.
TIP: If you consider an uninsured reverse mortgage, think carefully about the amount of money you need monthly, how many years you may need the money, how you will repay the loan when it comes due, and how much remaining equity you will need after paying off the loan.
If you have short-term but substantial cash needs, the uninsured reverse mortgage can provide a greater monthly advance than the other plans. However, because you must pay back the loan by a specific date, it is important for you to have a source of repayment. If you are unable to repay the loan, you may have to sell your home and move.
Western Pacific Home Loans- Reverse Mortgages
Enticing Benefits Increase Reverse Mortgage Applications
More and more homeowners are turning to reverse mortgages as a financial solution. According to the Department of Housing and Urban Development's FHA Outlook Report, the number of reverse mortgage applications increased by 11% from February to March of this year, with 7,398 homeowners applying for this type of financing. March was the second month in a row that showed an increase in loan applications. These numbers show that more homeowners are realizing the numerous benefits that this type of financing can offer them.
Reverse Mortgage Benefits Can Improve Your Lifestyle
For homeowners 62 and older, a reverse mortgage can be the best financial solution for their situations. This type of financing does not require the homeowner to make any monthly mortgage payments. With one less large monthly expense, the homeowner will have more money available and will not have to worry about losing his or her home due to delinquent mortgage payments.
If a homeowner has sufficient equity in his or her home, the equity can be converted into funds for the homeowner. The homeowner can use the money from his or her reverse mortgage for any expense, whether it is personal or for the home. The customizable disbursement options give homeowners the choice of how they receive funds. The amount of money a homeowner can receive varies, depending on age, home value and current interest rates. A homeowner can use a reverse mortgage calculator to get an estimate of the loan amount he or she could receive.
In this struggling economy, many homeowners are finding it difficult to keep up with their monthly mortgage payments, which explains the rising number of defaults and mounting foreclosures. The Obama Administration offered a solution for some homeowners with HAMP, but many homeowners do not qualify for the program. For homeowners who meet the requirements of a reverse mortgage, this type of financing could be the key to preventing foreclosure through the elimination of mortgage payments and addition of supplemental funds.
Requirements Homeowners Must Meet
This type of loan does not have any income or credit requirements. An applicant must be a homeowner and must be using his or her home as a primary residence. Home repairs, homeowner's insurance and real estate taxes are the responsibility of the homeowner (these loans do have escrow accounts) and must be kept current in order to prevent the loan from becoming due in full.
A reverse mortgage can be beneficial to homeowners in a number of ways. The elimination of mortgage payments and the opportunity to receive additional funds makes this type of financing a very attractive option. Homeowners can enjoy their retirement years without using their savings or income to pay for their home.
These loan are not due until the homeowner no longer occupies the home. Once the mortgage is due, the homeowner will not owe more than the home's value. This loan requires that the homeowner receives pre-loan counseling to ensure he or she is well informed of the loan requirements and can make a knowledgeable decision once all of the options are discussed. Senior homeowners should not have to spend their retirement years worrying about their finances and a reverse mortgage can help them eliminate that burden.
Western Pacific Home Loans- Reverse Mortgages
Reverse Mortgage Benefits Can Improve Your Lifestyle
For homeowners 62 and older, a reverse mortgage can be the best financial solution for their situations. This type of financing does not require the homeowner to make any monthly mortgage payments. With one less large monthly expense, the homeowner will have more money available and will not have to worry about losing his or her home due to delinquent mortgage payments.
If a homeowner has sufficient equity in his or her home, the equity can be converted into funds for the homeowner. The homeowner can use the money from his or her reverse mortgage for any expense, whether it is personal or for the home. The customizable disbursement options give homeowners the choice of how they receive funds. The amount of money a homeowner can receive varies, depending on age, home value and current interest rates. A homeowner can use a reverse mortgage calculator to get an estimate of the loan amount he or she could receive.
In this struggling economy, many homeowners are finding it difficult to keep up with their monthly mortgage payments, which explains the rising number of defaults and mounting foreclosures. The Obama Administration offered a solution for some homeowners with HAMP, but many homeowners do not qualify for the program. For homeowners who meet the requirements of a reverse mortgage, this type of financing could be the key to preventing foreclosure through the elimination of mortgage payments and addition of supplemental funds.
Requirements Homeowners Must Meet
This type of loan does not have any income or credit requirements. An applicant must be a homeowner and must be using his or her home as a primary residence. Home repairs, homeowner's insurance and real estate taxes are the responsibility of the homeowner (these loans do have escrow accounts) and must be kept current in order to prevent the loan from becoming due in full.
A reverse mortgage can be beneficial to homeowners in a number of ways. The elimination of mortgage payments and the opportunity to receive additional funds makes this type of financing a very attractive option. Homeowners can enjoy their retirement years without using their savings or income to pay for their home.
These loan are not due until the homeowner no longer occupies the home. Once the mortgage is due, the homeowner will not owe more than the home's value. This loan requires that the homeowner receives pre-loan counseling to ensure he or she is well informed of the loan requirements and can make a knowledgeable decision once all of the options are discussed. Senior homeowners should not have to spend their retirement years worrying about their finances and a reverse mortgage can help them eliminate that burden.
Western Pacific Home Loans- Reverse Mortgages
More homeowners turning to reverse mortgages
Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies.
The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.
Experts say the loans -- which are only available to those over age 62 -- are on the rise for several reasons, including provisions in the federal stimulus package that have made them cheaper and easier to get.
Increasingly, lenders say, even well-off seniors are relying on the loans to provide monthly spending money at a time when their retirement accounts and other income may be limited.
Strapped homeowners with fairly sizable mortgages are paying off their notes and living rent-free in their homes, said Mike Branson, Chief Executive of All Reverse Mortgage Co. in Garden Grove.
"We're getting homeowners with $1-million homes coming in now, which would never have been a HUD loan before," he said.
The loans are attractive because they require no credit report or proof of income, since the homeowners don't make payments. The current interest rate is about 4%.
But like other loans in the current credit crunch, nearly all of the business in reverse mortgages is being done with the help of the federal government.
Under the terms of the stimulus package, the Federal Housing Administration is now insuring such loans up to $625,000, an amount nearly double last year's rate. That means banks and other lenders that make the loans are covered if the house declines in value.
Reverse mortgages allow homeowners to tap into the value of their homes in the amount of a loan determined by an equation that factors in the owners' age, life expectancy and the value of their property, said Nancy West, a spokeswoman for the U.S. Department of Housing and Urban Development.
When the homeowner dies or sells the home, the lender is paid off first and any money left over goes to the estate or the homeowner, she said.
Western Pacific Home Loans- Reverse Mortgages
The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.
Experts say the loans -- which are only available to those over age 62 -- are on the rise for several reasons, including provisions in the federal stimulus package that have made them cheaper and easier to get.
Increasingly, lenders say, even well-off seniors are relying on the loans to provide monthly spending money at a time when their retirement accounts and other income may be limited.
Strapped homeowners with fairly sizable mortgages are paying off their notes and living rent-free in their homes, said Mike Branson, Chief Executive of All Reverse Mortgage Co. in Garden Grove.
"We're getting homeowners with $1-million homes coming in now, which would never have been a HUD loan before," he said.
The loans are attractive because they require no credit report or proof of income, since the homeowners don't make payments. The current interest rate is about 4%.
But like other loans in the current credit crunch, nearly all of the business in reverse mortgages is being done with the help of the federal government.
Under the terms of the stimulus package, the Federal Housing Administration is now insuring such loans up to $625,000, an amount nearly double last year's rate. That means banks and other lenders that make the loans are covered if the house declines in value.
Reverse mortgages allow homeowners to tap into the value of their homes in the amount of a loan determined by an equation that factors in the owners' age, life expectancy and the value of their property, said Nancy West, a spokeswoman for the U.S. Department of Housing and Urban Development.
When the homeowner dies or sells the home, the lender is paid off first and any money left over goes to the estate or the homeowner, she said.
Western Pacific Home Loans- Reverse Mortgages
Understanding Reverse Mortgages
For the average Canadian senior approximately 60 to 80 percent of their wealth is tied up in their home. For seniors with low income, accessing cash in times of need can be a real challenge. An increasing number of seniors have become house-rich and cash poor, and their financial state is challenged by the fact that most banks won't consider giving a loan to someone with little to no real monthly income.
For many seniors the answer to being cash strapped is what is called a "reverse" mortgage. A reverse mortgage is a loan against your home that you do not pay back for as long as you live in the house. Reverse mortgages allow you to turn the equity of your home into cash, without having to move or to repay the loan each month. Typically you don't have to pay the loan back until you die, sell your home, or permanently move.
The reverse mortgage may sound like a dream-come true for many people, but it is important that you understand the benefits and disadvantages before entering into such an agreement with your bank.
The Details
To qualify for a reverse mortgage banks typically require that you be at least 62 years of age and both own and live in your principal residence. Depending on your age, you may be able to access between 20 to 30 percent of the assessed value of your home. The older you are, and the more valuable your home, the larger the percentage you can usually access.
Reverse mortgages are usually paid out in a lump sum. You should check with your financial institution or planner for more information about reverse mortgages. Not all provinces in Canada have approved reverse mortgaging your home. The terms and conditions of a reverse mortgage are dependant on the issuing bank.
Benefits
The benefit of a reverse mortgage is cash on hand during your retirement years. Once you have a reverse mortgage you get to decide specifically how you will use the money, and unlike regular loans you don't have to make monthly repayments. Whether you use the money to pay bills, renovate your home, pay for health care or travel the world, a reverse mortgage allows you access to the equity in your home, while you continue to live in it.
Disadvantages
It is important to know that while reverse mortgages sound promising, they have their disadvantages. Reverse mortgages are relatively expensive, have high interest rates and there are very few reverse mortgage lenders.
By drawing on the equity of your home you are depleting the value of your house should you need or want to sell. If you take out a reverse mortgage then need to sell your home due to health concerns, you could be left without enough money to cover the costs of alternative accommodation later in life. And if you take out a reverse mortgage too early in life you may still be relatively young by the time the equity in your home is gone. If it is important to you to leave an inheritance or estate for your family, then a reverse mortgage may not be the right choice for you.
Consider the Options
Before jumping into a reverse mortgage consider all the options available to you. Experts agree that a reverse mortgage is often best considered a last resort. Other options such as lines of credit, re-mortgaging and investing, renting out a portion of your home or selling your house and investing the earnings, are often considered better financial options. Take the time to discuss your options with a financial planner, friends and family before jumping into any financial decision that may impact the comfort of your future.
Western Pacific Home Loans- Reverse Mortgages
How to Use Reverse Morgage to Enhance Retirement Plans
- Begin planning for retirement early. The best way to ensure you survive retirement comfortably is to plan early. The only sure way to fail is to fail to plan.
- List all of your current assets and potential retirement income sources. Closely examine all potential income sources, such as social security, 401K plans, IRA's, CD's and your home equity
- Make a list of what you expect your retirement expenses to be. Be certain to include every conceivable expense. It's also a good idea to add a cushion for unexpected emergencies
- Compare your two lists. Since you have done this before you reach retirement, it's not a tragedy when your proposed expenses are a little higher than your expected income. You have time to make adjustments.
- Learn what reverse mortgages can and cannot do for you. A reverse mortgage is quite simply a way to access the equity in your home to provide you tax free income with no monthly payments. You can usually access 80% of your equity and receive the income in a lump sum, equal monthly payments (amount computed on your life expectancy), an ongoing credit line, or any combination of the above. The most important thing to keep in mind is that it must be useful to you personally.
- Do additional research on your own. Reverse mortgages can be a wonderful tool for complementing your retirement plan. They can be a nightmare if misused. Some helpful links are at the end of this article to get you started.
- Decide if a reverse mortgage is a wise choice for you. Although your tax professional, your banker, and your attorney should be consulted, the only person who can decide if a reverse mortgage is right for you is you.
- Use reverse mortgage income wisely. That dream vacation you've always wanted is probably not one of the wisest choices. Consider home improvements that increase your equity, or regular checks to supplement necessary income as much better options.
Key Features and Safeguards of Reverse Mortgages
- Third Party Independent Counseling: Borrowers must meet with an independent reverse mortgage counselor, either in person or by telephone, who will review the transaction and answer any questions the borrower may have.
- No Maturity Date: A reverse mortgage cannot become due during the homeowner's lifetime. It is a permanent program. The fact that there are no required payments and there is a lifetime right to occupy the home provides great protection against unexpected future circumstances, making reverse mortgages much safer than other loan alternatives.
- Limitation on Fees Charged: Fees are limited by HUD regulations and may be financed, enabling a borrower to incur very little out-of-pocket expense to get a reverse mortgage.
- Advance Disclosure of Costs: The Total Annual Loan Cost disclosure displays the total transaction costs over the projected life of the loan. This way, a borrower is made fully aware of the costs incurred in obtaining the reverse mortgage.
- Standard & Capped Interest Rates: The interest rate is the same no matter which lender a borrower chooses. Interest rates are adjusted either monthly or annually (the borrower chooses) and have lifetime caps.
- No Prepayment Penalty: Although the loan is not due and payable until the borrower permanently moves out of the home, it can be paid-off at any point prior with no additional fees or costs.
- Three Day Rescission Right: Even after the loan closes, a senior has up to three days to cancel the transaction for any reason whatsoever.
- Asset Protection: The amount due can never exceed the value of the home and title to the home always remains with the borrower. When the loan becomes due, the lender is repaid the sum of funds borrowed plus the accrued interest, but never more than the value of the house. Any remaining value belongs to the homeowner or the estate.
Western Pacific Home Loans- Reverse Mortgages
Reverse mortgage can pump up retirement pay
A reverse mortgage could pay off your existing mortgage and eliminate the monthly mortgage payments you are currently paying. This could free up some income for you to play with each month.
Here's essentially how it would work. A reverse mortgage would pay off your existing mortgage balance of $145,000. Then, rather than having to make monthly interest and principal payments, the interest charged on the loan would simply add to the balance of the loan.
Let's assume your home will appreciate by 4 percent in the coming years, and the reverse mortgage interest rate averages 6 percent. Ten years from now, your home is worth $703,000 and the balance on the reverse mortgage is $260,000. In 20 years, your home is worth $1,040,000 and the loan balance is $465,000.
When you move from the home, sell the home or pass away, the loan becomes due, and any equity in the home goes to you or your heirs. In the event the mortgage balance is greater than the value of the home, you can walk away from the loan without paying a dime.
In addition to using a reverse mortgage to pay off your existing mortgage, you could also pull out extra cash, secure a line of credit or receive monthly income. Obviously, the more money you pull out, the less equity you'll have in your home.
Unlike a traditional mortgage, the startup costs are high, so you wouldn't want to use a reverse mortgage if you plan to move soon.
A reverse mortgage can be a great option, but for those who want to leave a truckload of money to their kids, paying off a home loan out of retirement income would be a better option.
Western Pacific Home Loans- Reverse Mortgages
Here's essentially how it would work. A reverse mortgage would pay off your existing mortgage balance of $145,000. Then, rather than having to make monthly interest and principal payments, the interest charged on the loan would simply add to the balance of the loan.
Let's assume your home will appreciate by 4 percent in the coming years, and the reverse mortgage interest rate averages 6 percent. Ten years from now, your home is worth $703,000 and the balance on the reverse mortgage is $260,000. In 20 years, your home is worth $1,040,000 and the loan balance is $465,000.
When you move from the home, sell the home or pass away, the loan becomes due, and any equity in the home goes to you or your heirs. In the event the mortgage balance is greater than the value of the home, you can walk away from the loan without paying a dime.
In addition to using a reverse mortgage to pay off your existing mortgage, you could also pull out extra cash, secure a line of credit or receive monthly income. Obviously, the more money you pull out, the less equity you'll have in your home.
Unlike a traditional mortgage, the startup costs are high, so you wouldn't want to use a reverse mortgage if you plan to move soon.
A reverse mortgage can be a great option, but for those who want to leave a truckload of money to their kids, paying off a home loan out of retirement income would be a better option.
Western Pacific Home Loans- Reverse Mortgages
Calculating the Benefits of a Reverse Mortgage
Reverse Mortgages: Salvation for Some
As our population ages and medical resources such as Medicare become more restrictive, reverse mortgages may become a blessing to us.Reverse mortgages allow a homeowner who is 62 and older to access funds if they have equity in their homes. Reputable lenders are approved to offer HUD reverse mortgages called HECMs (Home Equity Conversion Mortgages) and Fannie Mae has a product too. Other lenders also sell proprietary reverse mortgages but their terms are not standard Fannie or HUD. They might be appropriate for those who wish to borrow higher amounts; just make sure that the fees are fair and don't deviate too much from those of approved HUD or Fannie Mae lenders.
Features to Look for
Reverse mortgages come with several nice features. First, you can choose to get your cash in a variety of ways -- a lump sum, payments for a specified period or for life, or a combination. Second, you can remain in your home as long as you like -- the loan doesn't have to be repaid as long as you live in it. Third, you don't have to make payments, so even if your credit isn't good and your income is low you can get a reverse mortgage. And fourth, once your home is sold to repay the loan, any excess over what you owe is returned to you or your heirs.
Reverse Mortgages Aren't for Everyone
No matter how you use your mortgage calculator, the cost of a reverse mortgage is still steep. There is a 2% mortgage insurance fee, mortgage origination points, and closing costs -- which can vary between lenders, so shopping around is advantageous when securing one of these loans.
You also need a lot of equity to get a reverse mortgage, owing nothing or very little on your home. And the loan limits are pretty low -- those who own expensive homes and have good credit might be able to do better with a conventional cash-out refinance. AARP has a good mortgage calculator for reverse mortgages on their web site. Using the mortgage calculator, you can determine your maximum loan amount by plugging in your age, your home's value, and the amount of existing liens that will be paid off.
Your home and its equity may help you ease into the future with some security. Protect yourself and your home by making sound decisions when it comes time to buy or refinance. Talk to the experts make sure your choices are sound.
Western Pacific Home Loans- Reverse Mortgages
As our population ages and medical resources such as Medicare become more restrictive, reverse mortgages may become a blessing to us.Reverse mortgages allow a homeowner who is 62 and older to access funds if they have equity in their homes. Reputable lenders are approved to offer HUD reverse mortgages called HECMs (Home Equity Conversion Mortgages) and Fannie Mae has a product too. Other lenders also sell proprietary reverse mortgages but their terms are not standard Fannie or HUD. They might be appropriate for those who wish to borrow higher amounts; just make sure that the fees are fair and don't deviate too much from those of approved HUD or Fannie Mae lenders.
Features to Look for
Reverse mortgages come with several nice features. First, you can choose to get your cash in a variety of ways -- a lump sum, payments for a specified period or for life, or a combination. Second, you can remain in your home as long as you like -- the loan doesn't have to be repaid as long as you live in it. Third, you don't have to make payments, so even if your credit isn't good and your income is low you can get a reverse mortgage. And fourth, once your home is sold to repay the loan, any excess over what you owe is returned to you or your heirs.
Reverse Mortgages Aren't for Everyone
No matter how you use your mortgage calculator, the cost of a reverse mortgage is still steep. There is a 2% mortgage insurance fee, mortgage origination points, and closing costs -- which can vary between lenders, so shopping around is advantageous when securing one of these loans.
You also need a lot of equity to get a reverse mortgage, owing nothing or very little on your home. And the loan limits are pretty low -- those who own expensive homes and have good credit might be able to do better with a conventional cash-out refinance. AARP has a good mortgage calculator for reverse mortgages on their web site. Using the mortgage calculator, you can determine your maximum loan amount by plugging in your age, your home's value, and the amount of existing liens that will be paid off.
Your home and its equity may help you ease into the future with some security. Protect yourself and your home by making sound decisions when it comes time to buy or refinance. Talk to the experts make sure your choices are sound.
Western Pacific Home Loans- Reverse Mortgages
5 Reasons to Get a Reverse Mortgage
A reverse mortgage has many benefits over the alternative options of borrowing from other sources or not borrowing at all:
1. You can receive supplemental income based on the equity you have stored in your home. Rather than struggling to make ends meet or depending on your loved ones for help, you can receive extra income of your own.
2. The balance of the loan isn't due until after you and any co-borrowers are no longer living in the home. In many cases, you'll never have to worry about paying off the loan balance.
3. There are no credit check or income requirements. Unlike other types of loans based on your home's equity, a reverse mortgage doesn't require a check on your credit history and the lender doesn't assess your income level.
4. There is typically a cap on the interest rate which prevents the lender from charging exceeds fees on your mortgage.
5. Loan fees are added to the loan balance and are not due until the loan balance is due. You don't have the burden of paying monthly interest, mortgage insurance, or other fees.
Did you know a reverse mortgage can also help borrowers avoid foreclosure? It's true. In difficult times, the reverse mortgage program has become even more popular. By turning home equity into a liquid asset, borrowers can receive cash monthly, in a lump sum, or in a line of credit. The money from the reverse mortgage can be used to pay off existing assets, including a previous mortgage. And some borrowers have successfully used a reverse mortgage to get out of foreclosure and repay their debts.
Reverse mortgages are becoming more and more well known and trusted among seniors. Today's times require us to be careful with our money and make well-informed decisions. A reverse mortgage may not be right for every one or for every situation. OmniReverseMortgage.com can help make those decisions. We provide daily blogs and hundreds pages of information so you can ensure you are doing what is right for you
Western Pacific Home Loans- Reverse Mortgages
1. You can receive supplemental income based on the equity you have stored in your home. Rather than struggling to make ends meet or depending on your loved ones for help, you can receive extra income of your own.
2. The balance of the loan isn't due until after you and any co-borrowers are no longer living in the home. In many cases, you'll never have to worry about paying off the loan balance.
3. There are no credit check or income requirements. Unlike other types of loans based on your home's equity, a reverse mortgage doesn't require a check on your credit history and the lender doesn't assess your income level.
4. There is typically a cap on the interest rate which prevents the lender from charging exceeds fees on your mortgage.
5. Loan fees are added to the loan balance and are not due until the loan balance is due. You don't have the burden of paying monthly interest, mortgage insurance, or other fees.
Did you know a reverse mortgage can also help borrowers avoid foreclosure? It's true. In difficult times, the reverse mortgage program has become even more popular. By turning home equity into a liquid asset, borrowers can receive cash monthly, in a lump sum, or in a line of credit. The money from the reverse mortgage can be used to pay off existing assets, including a previous mortgage. And some borrowers have successfully used a reverse mortgage to get out of foreclosure and repay their debts.
Reverse mortgages are becoming more and more well known and trusted among seniors. Today's times require us to be careful with our money and make well-informed decisions. A reverse mortgage may not be right for every one or for every situation. OmniReverseMortgage.com can help make those decisions. We provide daily blogs and hundreds pages of information so you can ensure you are doing what is right for you
Western Pacific Home Loans- Reverse Mortgages
Reverse Mortgage Couseling
What to expect to learn when you meet with a counselor:
•HECM Reverse Mortgage Terminology - The counselor will cover all the different language and definitions that you see in literature received from a reverse mortgage lender of your choice. •HECM Roles - Learn about the FHA's and Fannie Mae and Ginnie Mae’s involvement with the reverse mortgage program.
•HECM Interest Rates – Explore different rates and how they tie into all the reverse mortgage program options available to you.
•HUD’s TALC Disclosure - The counselor will review how the disclosure that you will receive from your lender projects the total cost of the loan in the future.
•HECM Property Repairs – If your home needs repairs you can still obtain a reverse mortgage. The counselor will review the requirements, if applicable.
•Current Budget - A counselor may ask to review your current income and outgoing expenses to see what payment option may work best for you.
•Other Options - Keep in mind the counselors are not affiliated with any mortgage lender and will not recommend a lender to you. They may also review other financial options available to you to ensure you are making the best financial decision for your situation.
Reverse Mortgage Counseling Commonly Asked Questions:
•Why do I need counseling?
The U.S. Department of Housing and Urban Development requires you attend a certified counseling session for government insured reverse mortgage, or home equity conversion mortgage (HECM).
•How do I find a counselor?
We will provide you a customized counseling list for your area. Five of the agencies must be local, with at least one a reasonable driving distance from your home. The other five are national intermediaries such as AARP. The counselors can meet face-to-face or provide counseling over the telephone.
•What will the session entail?
In reverse mortgage counseling, you’ll get information and advice based on an analysis of your budget.Also you’ll discuss why you want a reverse mortgage. You'll review your current income, any debts, including an existing mortgage, your monthly expenses, medical expenses, planned home improvements, your current access to emergency cash and the possibility that you will move, either into a new home or a nursing home in the future.You’ll receive a projection of how much you can expect to receive from a reverse mortgage and you compare which payment plan would be best for you .Counseling will take about an hour or more if you have many questions.
•What do I need to do to prepare?
Request a pre counseling packet from Reverse Mortgage Store which includes a counseling list, NCOA’s ‘Use your home to stay at home’, HUD’s “Preparing for your counseling session”, Reverse Mortgage Counseling Checklist for California, CA – Important Notice to Reverse Mortgage Applicant and Calculations sheets: TALC, Amortization Schedule and Loan Comparison Printout
•What is a certificate of HECM counseling?
A certificate of HECM counseling is written evidence that you’ve received counseling.
•What if I’m acting as a legal guardian or have power of attorney?
A reverse mortgage counselor will require proof of your guardianship or power of attorney before conducting a counseling session.
Western Pacific Home Loans- Reverse Mortgages
California Reverse Mortgage : Reverse Mortgage Loan in CA
Your golden years of retirement in the Golden State shouldn't be spent worrying about your finances, so take advantage of a California reverse mortgage loan to make the most out of your existing home equity and live your retirement years in financial security.
Don't let financial limitations prevent you from enjoying a comfortable retirement life. We have the right solution for you. We can provide you access to a number of reverse mortgage lenders in California who can help you convert your home equity to cash without having to worry about repaying your loan amount every month. Also, by filling out our confidential, no-obligation form, we can guide you through the simple steps to secure best terms from a reputable reverse mortgage lender in California.
Benefits of a Reverse Mortgage in California
A California reverse mortgage is a special category of loan available to persons 62 years of age or older which enables you to cash out on your home equity and use the funds to pay off either most or all of your existing mortgage or other debts. It is the best mortgage option for persons who want to convert home equity to cash yet retain possession and ownership of their home. When you purchase reverse mortgage in California, you are not required to make repayments as long as you continue to live in your home. You may choose to receive your mortgage loan as a single lump sum payment, a regular monthly amount, a combination of both or as a credit line to draw funds when required.
Factors to consider before applying for a California Reverse Mortgage
•Before applying for reverse mortgage in California, obtain a complete appraisal of your home equity.
•Reverse mortgages are costly compared to other traditional mortgage plans.
•Your lender will charge the following fees for processing and issuing you loan: Origination fee, appraisal fee, title fee, escrow fee, recording fee, monthly servicing fee, etc.
•Avoid loan plans that offer equity appreciation. These plans may offer higher advances but ultimately prove very costly.
•Interest on your loan may be fixed or adjustable depending on the plan selected.
•Your lender will control most or all of your home equity.
•Reverse mortgages will prove to be very expensive in the event you move out of your home within five years of obtaining the loan.
Benefits of Reverse Mortgage Loans in CA
When you apply for a reverse mortgage loan in CA you will reap the following benefits:
•Your loan amount can be utilized for any purpose.
•Your borrowings are tax-free.
•There are no minimum income requirements for qualification.
•There is no affect to your Social Security, Medicare and other similar benefits.
•Medical tests and medical histories are not essential at the time of application.
•Your loan becomes due only when you die, move out, sell the home or fail to comply with loan agreements
Depending on the type of reverse mortgage, a California reverse mortgage lender is here to help you with any advice and information that you may require. Our safe, secure online form is simple and easy to use and takes just seconds. We guarantee professional guidance and the best offers to meet your complete mortgage requirements.
Western Pacific Home Loans- Reverse Mortgages
The Reverse Mortgage Process
Step 1. Action
You contact a Reverse Mortgage Advisor to get all of the information they will be needed to decide if a Reverse Mortgage is right for you.
Step 2. Counseling
Third party Counseling is mandatory and must be provided by a HUD approved agency. The counselor explains different options available to the consumer. To help schedule this you can contact HUD directly, or Steve Rivas, Reverse Mortgage Specialist at 714-923-7400.
Step 3. Application
You fill out the application and select the payment option: Monthly payments for life, credit line or lump sum payment, or I can structure a plan that includes all three options.
Step 4. Processing
We processes the loan, order an appraisal (to determine value of home) title report, lien payoffs and credit report. If the appraiser uncovers structural defects and if repairs are required, the repairs can be completed after closing within 6 months and the costs will be held in reserve.
Step 5. Underwriting
After receiving all pertinent information and data, we will finalize the loan parameters, package loan and submit it for underwriting and final approval.
Step 6. Closing
The loan is approved and the final signing is scheduled. The initial interest rate is calculated. Closing costs are normally financed into the loan. Closing papers and final figures are prepared and signed by you.
Step 7. Disbursement
You have three business days after closing to cancel the loan. After this period the funds are disbursed. The loan has repaid any previous debts on the property and you begin receiving payments according to your selected option.
Step 8. Repayment
You do not make any monthly mortgage payments to your lender during the life of the loan. The reverse mortgage becomes due and payable upon: the death of the borrower, the sale of the home, or if you no longer use the home as a primary residence.
Upon the death of the borrower, the heirs/estate may repay the loan from the sale of the home and cash out on the remaining equity, or refinance the home.
Western Pacific Home Loans- Reverse Mortgages
You contact a Reverse Mortgage Advisor to get all of the information they will be needed to decide if a Reverse Mortgage is right for you.
Step 2. Counseling
Third party Counseling is mandatory and must be provided by a HUD approved agency. The counselor explains different options available to the consumer. To help schedule this you can contact HUD directly, or Steve Rivas, Reverse Mortgage Specialist at 714-923-7400.
Step 3. Application
You fill out the application and select the payment option: Monthly payments for life, credit line or lump sum payment, or I can structure a plan that includes all three options.
Step 4. Processing
We processes the loan, order an appraisal (to determine value of home) title report, lien payoffs and credit report. If the appraiser uncovers structural defects and if repairs are required, the repairs can be completed after closing within 6 months and the costs will be held in reserve.
Step 5. Underwriting
After receiving all pertinent information and data, we will finalize the loan parameters, package loan and submit it for underwriting and final approval.
Step 6. Closing
The loan is approved and the final signing is scheduled. The initial interest rate is calculated. Closing costs are normally financed into the loan. Closing papers and final figures are prepared and signed by you.
Step 7. Disbursement
You have three business days after closing to cancel the loan. After this period the funds are disbursed. The loan has repaid any previous debts on the property and you begin receiving payments according to your selected option.
Step 8. Repayment
You do not make any monthly mortgage payments to your lender during the life of the loan. The reverse mortgage becomes due and payable upon: the death of the borrower, the sale of the home, or if you no longer use the home as a primary residence.
Upon the death of the borrower, the heirs/estate may repay the loan from the sale of the home and cash out on the remaining equity, or refinance the home.
Western Pacific Home Loans- Reverse Mortgages
Facts for Reverse Mortgage Consumers
Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity
If you’re 62 or older – and looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses – you may be considering a reverse mortgage. It’s a product that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to understand how reverse mortgages work, the types of reverse mortgages available, and how to get the best deal.
In a “regular” mortgage, you make monthly payments to the lender. In a “reverse” mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions.
Types of Reverse Mortgages
There are three types of reverse mortgages:
single-purpose reverse mortgages, offered by some state and local government agencies and nonprofit organizations
federally-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD)
proprietary reverse mortgages, private loans that are backed by the companies that develop them
Single-purpose reverse mortgages are the least expensive option. They are not available everywhere and can be used for only one purpose, which is specified by the government or nonprofit lender. For example, the lender might say the loan may be used only to pay for home repairs, improvements, or property taxes. Most homeowners with low or moderate income can qualify for these loans.
HECMs and proprietary reverse mortgages are more expensive than traditional home loans, and the up-front costs can be high. That’s important to consider, especially if you plan to stay in your home for just a short time or borrow a small amount. HECM loans are widely available, have no income or medical requirements, and can be used for any purpose.
Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary reverse mortgages also require counseling. The counselor is required to explain the loan’s costs and financial implications, and possible alternatives to a HECM, like government and nonprofit programs or a single-purpose or proprietary reverse mortgage. The counselor also should be able to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. To find a counselor, visit www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm or call 1-800-569-4287. Most counseling agencies charge around $125 for their services. The fee can be paid from the loan proceeds, but you cannot be turned away if you can’t afford the fee.
How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.
The HECM lets you choose among several payment options. You can select:
- a “term” option – fixed monthly cash advances for a specific time.
- a “tenure” option – fixed monthly cash advances for as long as you live in your home.
- a line of credit that lets you draw down the loan proceeds at any time in amounts you choose until you have used up the line of credit.
HECMs generally provide bigger loan advances at a lower total cost compared with proprietary loans. But if you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage. So if your home has a higher appraised value and you have a small mortgage, you may qualify for more funds.
Loan Features
Reverse mortgage loan advances are not taxable, and generally don’t affect your Social Security or Medicare benefits. You retain the title to your home, and you don’t have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence.
In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid.
If you’re considering a reverse mortgage, be aware that:
- Lenders generally charge an origination fee, a mortgage insurance premium (for federally-insured HECMs), and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender sometimes sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law.
- The amount you owe on a reverse mortgage grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases as the loan funds are advanced to you and interest on the loan accrues.
- Although some reverse mortgages have fixed rates, most have variable rates that are tied to a financial index: they are likely to change with market conditions.
- Reverse mortgages can use up all or some of the equity in your home, and leave fewer assets for you and your heirs. Most reverse mortgages have a “nonrecourse” clause, which prevents you or your estate from owing more than the value of your home when the loan is repaid.
- Because you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay property taxes, carry homeowner’s insurance, or maintain the condition of your home, your loan may become due and payable.
- Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
Getting a Good Deal
If you’re considering a reverse mortgage, shop around. Compare your options and the terms various lenders offer. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. That can help inform the questions you ask that could lead to a better deal.
If you want to make a home repair or improvement – or you need help paying your property taxes – find out if you qualify for any low-cost single-purpose loans in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and how to apply.
All HECM lenders must follow HUD rules. And while the mortgage insurance premium is the same from lender to lender, most loan costs, including the origination fee, interest rate, closing costs, and servicing fees vary among lenders.
If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.
No matter what type of reverse mortgage you’re considering, understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the projected annual average cost of a reverse mortgage, including all the itemized costs.
Be Wary of Sales Pitches
Some sellers may offer you goods or services, like home improvement services, and then suggest that a reverse mortgage would be an easy way to pay for them. If you decide you need what’s being offered, shop around before deciding on any particular seller. Keep in mind that the total cost of the product or service is the price the seller quotes plus the costs – and fees – tied to getting the reverse mortgage.
Some who offer reverse mortgages may pressure you to buy other financial products, like an annuity or long term care insurance. Resist that pressure. You don’t have to buy any products or services to get a reverse mortgage (except to maintain the adequate homeowners or hazard insurance that HUD and other lenders require). In fact, in some situations, it’s illegal to require you to buy other products to get a reverse mortgage.
The bottom line: If you don’t understand the cost or features of a reverse mortgage or any other product offered to you – or if there is pressure or urgency to complete the deal – walk away and take your business elsewhere. Consider seeking the advice of a family member, friend, or someone else you trust.
Your Right to Cancel
With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt. That will allow you to document what the lender received and when. Keep copies of your correspondence and any enclosures. After you cancel, the lender has 20 days to return any money you’ve paid up to then for the financing.
Western Pacific Home Loans- Reverse Mortgages
Seniors’ Home Equity in Southern California
The longer a senior has owned their home, the more reverse mortgages options they will enjoy. For seniors in Southern California who have owned their home for at least 10 years, having enough home equity is usually not a problem due to the high appreciation in this region. Even though home prices now appear to be headed down, most long-term residents still have a significant amount of home equity. And once the reverse mortgages Southern California are obtained, the homeowners need not worry about further home price depreciation. It will not affect the loan or amount of money available, as the lender (or FHA) assumes the risk of further drops in value. For this reason, the time to apply for a reverse mortgage is now, to avoid any risk of being disqualified due to further home equity declines.
Western Pacific Home Loans- Reverse Mortgages
Western Pacific Home Loans- Reverse Mortgages
Reverse Mortgage Referrals Fees Are No More
In response to the National Housing Act (HR 3221), most Reverse Mortgage lenders have announced that they will NOT allow payment of referral fees to mortgage brokers. This means that non-FHA approved brokers will no longer be able to receive the common application assistance fee, which in reality is a referral fee.
This is good news for seniors who have been marketed to by mortgage brokers who know little or nothing about reverse mortgage programs. Seniors need solid answers from experts in reverse mortgages, not “yes, we do reverse mortgages . . . I’ll get back to you”.
The good news is that this same bill will increase the FHA 203(B) (HECM reverse mortgage) lending limit. This means that senior homeowners, whose homes are currently worth more than the lending limit for their area, will likely see an increase in the amount of money available to them under the FHA HECM reverse mortgage. The new limit is expected to be $417,000 and will take effect in November of this year.
Western Pacific Home Loans- Reverse Mortgages
This is good news for seniors who have been marketed to by mortgage brokers who know little or nothing about reverse mortgage programs. Seniors need solid answers from experts in reverse mortgages, not “yes, we do reverse mortgages . . . I’ll get back to you”.
The good news is that this same bill will increase the FHA 203(B) (HECM reverse mortgage) lending limit. This means that senior homeowners, whose homes are currently worth more than the lending limit for their area, will likely see an increase in the amount of money available to them under the FHA HECM reverse mortgage. The new limit is expected to be $417,000 and will take effect in November of this year.
Western Pacific Home Loans- Reverse Mortgages
Top Q&A's on Reverse Mortgages
Top Q&A's
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free cash without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Below are some common questions asked by consumers about reverse mortgages.
How Much Money Can I Get?
The amount of funds you are eligible to receive depends on your age (or the age of the youngest spouse in the case of couples), the appraised home value, interest rates, and in the case of the government program, the lending limit in your area. In general, the older you are and the more valuable your home (and the less you owe on your home), the more money you can get.
Does My Home Qualify?
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built after June 1976), condominiums, and townhouses. In general, cooperative housing is ineligible. However, some lenders have developed private programs that lend on co-ops in New York.
What are My Payment Plan Options?
You can choose to receive the money from a reverse mortgage all at once as a lump sum, fixed monthly payments either for a set term or for as long as you live in the home, as a line of credit, or a combination of these. The most popular option – chosen by more than 60 percent of borrowers – is the line of credit, which allows you to draw on the loan proceeds at any time. To learn more, click here.
My Understanding is that the Unused Balance in the Line of Credit Option Has a Growth Feature. Does that Mean I'm Earning Interest?
No, you're not earning interest like you do with a savings account. The growth factor, which is equal to roughly the interest that you're being charged, takes into consideration that your home has appreciated in value over the past 12 months and that you are one year older.
How Can I Use the Proceeds from a Reverse Mortgage?
The proceeds from a reverse mortgage can be used for anything, whether its to supplement retirement income to cover daily living expenses, repair or modify your home (i.e., widening halls or installing a ramp), pay for health care, pay off existing debts, buy a new car or take a "dream" vacation, cover property taxes, and prevent foreclosure.
How Does the Interest Work on a Reverse Mortgage?
With a reverse mortgage, you are charged interest only on the proceeds that you receive. Most reverse mortgages charge a variable interest rate (although fixed rate products are entering the marketplace) that is tied to an index, such as the 1-Yr. Treasury Bill or the London Interbank Offered Rate (LIBOR), plus a margin that typically adds an additional one to three percentage points onto the rate you're charged. Interest is not paid out of your available loan proceeds, but instead compounds over the life of the loan until repayment occurs.
Are There Any Special Requirements to Get a Reverse Mortgage?
As long as you own a home, are at least 62, and have enough equity in your home, you can get a reverse mortgage. There are no special income or medical requirements.
What If I Have An Existing Mortgage?
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. However, the reverse mortgage must be in a first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or assistance from a family member or friend.
For example, let's say you owe $100,000 on an existing mortgage. Based on your age, home value, and interest rates, you qualify for $125,000 under the reverse mortgage program. Under this scenario, you will be able to pay off ALL the existing mortgage and still have $25,000 left over to use as you wish.
If, however, you only qualify for $85,000, then you would need to come up with $15,000 from your own savings to get the reverse mortgage. Even then, all the money from the reverse mortgage will have been used to pay off the existing mortgage. On the other hand, you won't have a monthly mortgage payment anymore.
If you find yourself in a deficit situation where you don't have enough money to pay off the existing mortgage, you may use funds from a grant or gift from a family member or friend to cover the gap, but you cannot incur a new debt obligation (i.e., loan).
What is a monthly servicing fee, and is it charged on every reverse mortgage?
Depending upon which product you select under the FHA HECM program, you may be charged a monthly servicing fee that ranges from $30 - $35 monthly. This fee covers the expense of the ongoing servicing of your reverse mortgage.
The Servicing Fee Set Aside (SFSA) is an estimate of what the total servicing fees will be over the life of the loan. It is calculated using your life expectancy (converted from years into months) and the amount of monthly servicing fee. This amount is not considered a closing cost and is not part of your initial loan balance, rather it is simply set aside from funds availble to you, and then charged to your monthly loan balance at the rate equal to your monthly servicing fee amount.
Some HECM products have no monthly servicing fee and no servicing fee set aside. Please consult with your lender or HUD-approved reverse mortgage counselor to obtain additional information to this particular feature of the HECM product.
Will I Lose My Government Assistance If I Get a Reverse Mortgage?
A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid, any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain would count as an asset and could impact Medicaid eligibility. For example, if you receive $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine. Any residual funds remaining in your bank account the following month would count as an asset. If the total liquid resources (including other bank funds and savings bonds) exceed $2,000 for an individual or $3,000 for a couple, you would be ineligible for Medicaid. To be safe, you should contact the local Area Agency on Aging or a Medicaid expert.
Why Do I Need to Get Counseling?
Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage.
You can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as National Foundation for Credit Counseling (866-698-6322), Money Management International (877-908-2227), Consumer Credit Counseling Service of Greater Atlanta (866-616-3716) and National Council on Aging (800-510-0301). Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone.
By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives; (ii) other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.
When Do I Pay Back My Loan?
No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.
Under What Circumstances Should I Not Consider a Reverse Mortgage?
Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you're having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage.
Western Pacific Home Loans- Reverse Mortgages
Top 9 Reverse Mortgage Myths – Separating Fact from Fiction
The top 9 most common reverse mortgage myths include:
Myth: If I take out a reverse mortgage the lender will own my home.
Fact: False. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due.
Myth: My children will be responsible for the repayment of the loan.
Fact: False. Reverse mortgages are non-recourse loans. That means, if the property is sold to pay-off the loan when the homeowner passes away or decides to leave the home for other reasons, there will be no mortgage debt for the family and heirs to repay. The maximum amount owed is the current market value of the house. If the homeowner’s heirs want to keep the home, they would pay the balance in-full to the reverse mortgage lender.
Myth: I can’t get a reverse mortgage if I have an existing mortgage.
Fact: False. With enough equity, you may be able to pay off your existing mortgage or other debt with the reverse mortgage. The reverse mortgage must be in a first lien position, so any existing mortgage must be paid off. Seniors who take out reverse mortgages are free to do anything they want with their reverse mortgage proceeds. Paying off an existing mortgage is the number one reason most seniors take out a reverse mortgage.
Myth: Only low-income seniors get reverse mortgages.
Fact: False. Although some seniors may have a greater need than others for the monthly proceeds or lump sum funds reverse mortgages offer, most simply prefer to be free of monthly mortgage payments. Without monthly mortgage payments, many homeowners find they can maintain their existing quality of life and build their savings to help with future expenses. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.
Myth: If I outlive my life expectancy, the lender will evict me.
Fact: False. Reverse mortgage lenders put no time limit on how long seniors can stay in their homes. Since homeowners still own the property, lenders cannot evict them, provided they follow the program guidelines.
Myth: There are no objective advisors available to seniors trying to decide if a reverse mortgage suits their needs.
Fact: False. Borrowers are required to work with independent, third party counselors approved by the U.S. Department of Housing and Urban Development (HUD) in their local communities. This educational session helps them make the right decision for their unique situations.
Myth: There are restrictions on how reverse mortgage proceeds may be used.
Fact: False. There are no restrictions. The cash proceeds from the reverse mortgage can be used for virtually any purpose and borrowers should be cautious of lenders attempting to cross sell other products. Many seniors have used reverse mortgages to pay off debt, help their kids, make ends meet or to have a financial reserve.
Myth: Reverse mortgage lenders take advantage of seniors.
Fact: False. Seniors who have been victims of reverse mortgage lending schemes are extreme exceptions and typically victims of unsavory lenders. As a consumer, you should only work with lenders who are Better Business Bureau and National Reverse Mortgage Lenders Association (NRMLA) members and adhere to those organizations’ strict Code of Ethics and Standards for Trust.
Myth: I’ve heard I won’t qualify for a reverse mortgage because of my limited income.
Fact: Unlike a traditional mortgage where mortgage payments must be made each month, a reverse mortgage pays you. Because of this, many seniors who do not qualify for traditional financing are eligible for a reverse mortgage.
Top Ten Things to Know if You're Interested in a Reverse Mortgage
Reverse mortgages are becoming popular in America. HUD's Federal Housing Administration (FHA) created one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading a free booklet, "Use Your Home to Stay at Home," a guide for older homeowners who need help now. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA's HECM provides these benefits. 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.
2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.
4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
5. What's the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."
6. Can the lender take my home away if I outlive the loan?
No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current and maintains the property.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You can use an online calculator like the one on the AARP website to get an idea of what you may be able to borrow.
9. Should I use an estate planning service to find a reverse mortgage?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HECM housing counselors are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
You have five options:
Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term - equal monthly payments for a fixed period of months selected.
Line of Credit - unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home.
Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
Reverse Mortgages- A Breif Description
Reverse Mortgages--What are They?
- Reverse Mortgages allow seniors to tap into home equity to obtain tax-free money
- Funds can be used for anything
- No monthly payments
- Senior retains title
- Loan is repaid when the senior moves or upon death
- Heirs receive from will or trust from Senior
What Are Some of the Benefits of a Reverse Mortgage?
- Eliminates your current mortgage payment (if any)
- Requires you to make NO MONTHLY PAYMENTS of any kind
- Enables your heirs to inherit your home
- Enables you to stay in your home for the rest of your life
- All proceeds are Tax FREE, there are no income or credit requirements to qualify
- You can use the funds for any purpose you choose
- All borrowers must be over the age of 62
- All borrowers must occupy the property as their principal residence
- No credit or income requirements
- Existing single-family homes, PUDs, condos, manufactured homes & 2-4 unit properties
- Existing liens OK
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