Detailed Reverse Mortgage Information

http://www.reversemortgageinfo.com/all-reverse-mortgage/reverse-mortgage-specifications/

Here is a great article that goes into the specifications of what to expect with a Reverse Mortgage..

Reverse Mortgage Specifications

Loan Amounts

The maximum amount that you can borrow is based on the following factors:

• The age of the youngest homeowner.
• The appraised value of the home.
• The current interest rate.

In general, the more your home is worth and the older you are, the more you’ll be able to borrow. However, FHA sets a limit on the value of the home. On February 18, 2009, President Obama signed into law The Housing and Economic Recovery Act of 2008. Perhaps the most significant piece of housing-related legislation we have seen in recent years, the new bill implemented necessary consumer protections along with several positive changes to the FHA reverse mortgage program.

One of these positive changes included the implementation of a new national limit of $625,500. (Prior to this, the national limit was $417,000). If your home is worth more than the $625,500 national limit, you are still eligible for a HECM loan. But, the amount of money you can get is based on the national FHA limit, not on the home’s actual value. For example, if your home is valued at $700,000, then your available cash from a reverse mortgage is the same as it would be if your home were valued at $625,500.

Costs and Fees.

“Some people will say reverse mortgages are expensive while others will tell you they are the greatest deal on earth. What all the years of talking to seniors about reverse mortgages has taught me is that you can show somebody what something costs, but you cannot tell them what it’s worth to them,’’ said Ken Scholen, founder of the nonprofit National Center for Home Equity Conversion.
It’s important to note that all fees associated with obtaining a Reverse Mortgage are regulated by HUD and most of the fees can be financed into the loan. These costs include:

• ORIGINATION FEE: One critical item of the new housing bill is a reduction in the amount of origination fees lenders can charge on the country’s most popular reverse-mortgage program. The new calculation reduces the origination fee to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of your home’s value or the FHA limit, whichever is lower. This pays the lender for preparing the paperwork and processing the loan.

• THIRD PARTY FEES: Completing your Reverse Mortgage requires a variety of services preformed by companies other than your lender. These people are called “Third Parties”. These services include, but are not limited to, the appraisal, title insurance, mobile notary fees, recording fees, escrow fees, etc. Third party closing costs on a Reverse Mortgage vary with the value of the home and from one county to another, but tend to range from $1500-$2500.

• FHA MORTGAGE INSURANCE PREMIUM: Considered by many to be the most important feature of the loan, the FHA mortgage insurance serves two significant purposes. 1) From the borrower’s perspective, it guarantees that no matter what might happen to the lender or the home’s value, the borrower will receive every penny of their money, directly from the U.S. Government, if necessary. 2) From the lender’s perspective, the FHA insurance guarantees that if the balance due exceeds the value of the home at loan termination, FHA will cover all or part of the shortfall to the lender on behalf of the borrower. This feature, which eliminates the risk to the lender, enables them to offer a much lower interest rate to be charged on HECMs in comparison to other types of reverse and conventional mortgages. (This could save the senior homeowner tens of thousands of dollars in accumulated interest over a long period of time.) In addition, because of this lower interest rate, lenders are able to offer a much larger cash benefit on HECM reverse mortgages than on other non-insured reverse mortgages. For this insurance requirement, two percent of the home value, or FHA national limit (whichever is less) is financed into the closing costs. In addition, .5% is added to the interest rate charged on the outstanding loan balance on a monthly basis.

• SERVICING FEES: Servicing happens after your loan has closed and funded. This includes sending you your payments, making or changing loan advances at your request and sending out account statements regularly. The servicing fee is not considered a closing cost and ranges from $30-$40 per month.

Interest Rates

FHA reverse mortgages can be based on either a fixed or adjustable rate loan. Adjustable Rates are linked to the LIBOR plus a margin. For the adjustable rate program, the change in the interest rate has no effect on the amount of or the number of loan advances you can receive, but causes the loan balance to grow at a faster or slower rate. The adjustable rate program does have a 10% cap on the initial interest rate. However, since the programs inception in 1989, the cap has never been reached. (Over the last 25 years, the average interest rate for FHA HECM reverse mortgage is 6.11%).

Loan Repayment

The loan becomes due and payable when the last borrower no longer occupies the property as their primary residence, whether that is by selling or by death. There is no pre-payment penalty. The amount ultimately due is simply the amount you borrowed plus the interest that had accumulated. Just like a traditional mortgage, heirs to your estate have the option of selling the property to payoff the loan balance or they can keep the home and payoff the loan via a conventional mortgage, savings, etc.

Eligibility

To be eligible, you must be 62 or older. If you are 62 and your spouse is not, then as a “couple” you cannot obtain such a loan. (Only under certain circumstances should the younger spouse be removed from the title so the older spouse can obtain the reverse mortgage.)

You must live in a home that is owned free and clear or have a remaining mortgage balance that can be paid off by the reverse mortgage. For example, if you owe $100,000 on a mortgage or home equity loan, you would have to qualify for at least $100,000 and use it to pay off this debt at closing.

A home that is a primary residence can be owned individually, jointly, in trust or with a life estate. If you set up a revocable trust, a reverse mortgage can still be an option provided that you are the beneficiary. Your children can be beneficiaries upon the death. Title to the property must be in the trustees and the trustees do not have to be the borrowers. The trust will be reviewed during loan processing. Therefore, a copy of the trust will need to be provided at application signing.

Important Note: Since you continue to own your home, you are still responsible for property taxes, homeowners insurance and repairs.

Alternatives to the Reverse Mortgage.  One option is to sell your current residence and downsize. AARP, in survey after survey, states that a majority of our elders do not want to move. It is ideal to be able to stay in the environment that contains much of their family and personal history. Usually they want to remain in an area that is familiar. Your home is the story of your life and stores so many of your precious memories. If the home is sold, you then have to find a place to live. Often a smaller home will cost more than the home you just sold, so a sale often becomes financially impractical.

A second option is to go to your neighborhood bank to get a conventional mortgage. Now days, when you apply for a mortgage, income and assets are reviewed. All sorts of financial ratios are determined. Credit scores are carefully analyzed. While some seniors may be able to qualify for a conventional loan, they do not want the headache or the responsibility of paying it back on a monthly basis. Making those monthly payments is something they can do without.
Closing Comments.  A reverse mortgage is the only way you can turn your home equity into cash while staying in the home that you love and while not having to pay a current interest payment on the loan.

A reverse mortgage is nothing short of a life-changing event. The look on the face of the borrower tells the whole story. For some, the weight of the world has been lifted from their backs. They are ready to take on the world again. They get the best of both worlds: their equity is transformed into cash AND they can still stay in their home as the sole owner(s) on title.

Because we are living longer, we must be preparing for the unique challenges that all of us will eventually face. We are past the time for depending on the government to take care of us. It is a time for becoming proactive. Beginning in the year 2012, 10,000 Americans per day will be turning 65. In the ‘good old days’, one would get old, sick and die. That is no longer happening. There is a new paradigm. Now we grow old, get sick and survive….for many years.

A National Council on Aging study shows that reverse mortgages will keep millions of our seniors in their homes. Not only will it free up funds for in-home care but will also allow millions of our elders to make needed improvements to the home. This will enable seniors to stay in the home.

Seniors do not buy long-term care insurance because it is too expensive. Let us not forget that Social Security is the largest source of funds for people over the age of 65. A reverse mortgage will make that which was not affordable very affordable.

There are about 22 million senior households in this country. About 17 million of these households own their home free and clear. The home will continue to represent the biggest untapped source of equity. Many of our elders are literally sitting on a gold mine. By showing our seniors how they can easily and safely extract this gold, convert it into cash and use the proceeds for any purpose while never having to make a mortgage payment, their lives will be changed forever… for the better!


Western Pacific Home Loans- Reverse Mortgages

When is a Reverse Mortgage a Good Idea?

Reverse Mortgages

Western Pacific Home Loans




For senior homeowners needing some extra cash, it’s sometimes better to look backwards instead of forwards – with their mortgage, that is.


Reverse mortgages are not easily understood, and many who could benefit from them shy away, afraid of making a mistake. Journalists who have only a cursory understanding of the product may contribute to this. This post lays out the pros and cons of reverse mortgages, and when you’re finished reading, you should be able to confidently determine if they are right for you or someone you care about.


What exactly is a reverse mortgage?
A reverse mortgage is exactly what it sounds like. With a forward (i.e., regular) mortgage, you start with a principal balance and make payments until the loan is paid off and you own your home outright. With a reverse mortgage, the lender makes payments to you. Repayment on a reverse mortgage is not required until the home is no longer your primary residence. Because you don’t make payments, lenders don’t care about your credit score or your income when you apply for a reverse mortgage.


Types of reverse mortgages
The most common reverse mortgage is the Home Equity Conversion Mortgage, or HECM. The program is administered by HUD, and its fees are regulated. HUD requires seniors to attend sessions with HUD-approved reverse mortgage counselors before they can take out one of these loans. About 90 percent of reverse mortgages are HECMs.


For very low income seniors, Single Purpose reverse mortgages are a low- to no-cost option that can provide funds for home maintenance or property taxes. They are available from local governments and charitable groups.


Proprietary reverse mortgages are funded by private lenders, and these companies make their own rules. You may be able to borrow a lot more money with these loans, but costs are much less regulated. Counseling is not required, but it’s probably a good idea – see below for more details.


How much can you borrow?
The more equity in your home, the more you can borrow. However, this amount also depends on your age (older people can borrow more), your home equity (if you have a mortgage, it must be small enough that the reverse mortgage can pay it off), interest rates and, for Home Equity Conversion Mortgages (HECMs), HUD’s loan limits.


How should you take your proceeds?
You can customize the way you receive your proceeds, depending on your use for the money. Your reverse mortgage counselor can help you with this.


Lump sum payment: This is ideal for thing like paying for catastrophic medical expenses or consolidating debt. An unspent lump sum, however, can jeopardize your eligibility for government benefits tied to assets, like SSI and Medicaid. Reverse mortgage proceeds are not countable as income because they are loans. However, Medicaid and SSI eligibility requires applicants to have no more than $2,000 ($3,000 for a couple) in countable assets each day out of the month. So if you took a lump sum distribution and parked it in something like a high interest savings account, even just for a day or two, you’d be ineligible for these benefits.
Monthly payments: Modified tenure gets you payments for a specified period of time, for example, five or ten years. Traditional tenure gets you payments for life. Although your payments will be considerably smaller, this is a good option for ongoing supplemental income.
Line of credit: This lets you tap your home’s equity only when you need to. It can be the best choice, like credit cards which charge no interest until you use them.
Combinations of the above options are also available, allowing you to customize your distribution; for example, a lump sum to pay off debt and a line of credit for emergencies.


How much does a reverse mortgage cost?
Like all financing, reverse mortgages come with costs. There is mortgage insurance, which is paid upfront and costs one-hundredth of 1 percent (0.0001) of the property value for HECM Saver (which has lower borrowing limits) or 2 percent for HECM Standard. On a $300,000 home, that’s $30 for the Saver and $6,000 for the Standard. Then there are other charges and of course interest. Lenders have to give you a disclosure called the Total Annual Loan Cost (TALC) which lets you compare reverse mortgage costs.


Because the upfront costs can be substantial, reverse mortgages may not be appropriate for those who can qualify for less-costly home equity loans instead. You should also think twice if you are in poor health or are contemplating a move within the next few years.


Don’t skip counseling

If you have decided a reverse mortgage is your best bet, talk to a reverse mortgage counselor so that you can be an informed shopper. Along with local HUD-approved counseling agencies, there are a number of national counseling agencies that can assist you. While HECM loans are regulated, proprietary loans are not, and even HECM lenders do price differently. Whether counseling is required or not, it’s smart to compare reverse loans and be fully informed before committing to a product.