Reverse Mortgages: Explained
When To Recommend and When To Be Avoided
Presented by
Karl Parize
Broker # 01364278
History of Reverse Mortgages
During the 1970s, several private banks offered Reverse Mortgage style loans. These helped seniors remain in their home by using their homes’
equity to pay off the mortgage. However, these early Reverse Mortgages didn’t provide the protections today’s loans do.
In 1987, the U.S. Department of Housing & Urban Development (HUD) established a trial program issuing government-insured Reverse Mortgages and the Home Equity Conversion Mortgage, or HECM, was born. Since then, HECM Reverse Mortgages have rapidly grown in popularity.
These secure, government-insured loans have enabled thousands of
seniors to obtain cash to supplement their retirement income.
A Reverse Mortgage* is an innovative government-insured loan that enables a qualified homeowner to utilize some of the home’s existing equity in order to obtain cash for their retirement needs.
Reverse Mortgages have helped thousands of homeowners to remain in their homes (mortgage payment free), throughout their retirement years.
Simply stated, a reverse mortgage is an equity loan secured by the home which is planned to defer the mortgage interest.
*The most common type of reverse mortgage is the HECM, acronym for Home Equity Conversion Mortgage. Created by the Federal Housing Administration in 1989.
What Is a Reverse Mortgage?
• While a traditional home mortgage requires the homeowner to make monthly payments, the reverse mortgage interest is not due until the loan reaches maturity.
• As long as the homeowner still resides in their property and pays their property taxes and insurance they can take advantage of not making monthly payments on the money they borrowed.
• With a reverse mortgage the homeowner continues to own their home. Similar to a mortgage, they will receive a monthly statements which will outline all interest charges and balance information.
What Is a Reverse Mortgage? (cont’d)
What are the qualifications?
Reverse mortgages are available to those who meet the following criteria:
US citizen and
Permanent Resident and
Age 62 or older and
Substantial equity in their home.
The maximum loan amount is based on the youngest homeowner’s age, current rates, and home value.
There is no income or credit score requirements.
The homeowner must continue to live in their home as a primary
residence and must continue to pay property taxes and insurance.
Homeowners can choose to make voluntary repayments of the mortgage interest in part or full without penalty.
The mortgage interest can be a deduction just like a traditional home loan and the balance can be paid off at any time with cash, refinancing or selling.
While no one can predict a home’s appreciation, the homeowner’s can rest assured that their heirs have no recourse to the reverse
mortgage that was taken.
Reverse Mortgage Options
Refinancing a Reverse Mortgage
Tap into additional equity – (consider costs associated with refinancing )
Change in interest rates
Since the balance of a reverse mortgage continues to accumulate
interest until it is repaid, a lower interest rate would provide less interest.
For those that took out reverse mortgages many years ago probably were limited to variable-rate products, and might wish to refinance into a fixed-rate loan for peace of mind.
The savings from lower interest might be offset by fees associated with the refinancing. In the case of reverse mortgages, these can be significant.
Reverse Mortgage Opportunities
Reverse Mortgage to Purchase
This program can help senior homeowners relocate or downsize to a new home without giving up all their savings -- and save them thousands of dollars in the process.
Do not have to sell existing home
Helps financially strapped seniors needing to boost their incomes:
Stock portfolio values plummeted
Interest on investments shrank
Costs for health care increased
Home repairs have skyrocketed.
Reverse Mortgage Opportunities – (cont’d)
Built In Safeguards
Independent HUD Counselors Provide Valuable Information
Before processing begins, the homeowner must talk with an independent counselor approved by the U.S. Department of Housing and Urban
Development (HUD). They provide objective information about Reverse Mortgages and answer any questions.
Interest Rates are capped
Even if the loan has an adjustable interest rate, there is a limit on how
much the rate may change during a specified time period. These reverse
mortgage interest rate caps ensure that the rate won’t increase beyond a
certain level.
Built In Safeguards – cont’d
All Costs Are Up Front
The Reverse Mortgage lender must disclose all estimated loan costs and fees, including the Total Annual Loan Cost (TALC), so the homeowner will know exactly what they are paying to get the Reverse Mortgage.
Three Days to Cancel
The Reverse Mortgage contract has a “Right of Rescission,” giving a
homeowner the right to cancel the loan within three business days of
closing.
Repaying the Reverse Mortgage
Examples of when a Reverse Mortgage must be repaid:
House is sold or the title is transferred to another person
House is vacated for longer than 12 months (in most states)
Homeowner passes away and there is no other borrower on the title
Home’s condition is not maintained according to FHA requirements
Required property taxes and/or homeowners insurance is not paid
The most common situation is that the last borrower on the title passes
away after living in the home until his or her death. The estate then sells
the home and repays the Reverse Mortgage with the proceeds, keeping
any remaining equity.
The Reverse Mortgage Process
The steps to obtaining a Reverse Mortgage loan include:
1. Examine The Financial Situation
2. Complete a Reverse Mortgage Application 3. Speak with a HUD Counselor
4. Home Appraisal
5. Loan Processing and Underwriting 6. Loan Closing
7. Receive Their Money
The MomentumRG Difference
Reverse Mortgage lenders are not alike.
We pride ourselves on putting the customers’ best interests as the priority.
Constant, dedicated contact – Unlike some Reverse Mortgage lenders, we work directly with the homeowner to manage the loan process from
application through funding
A Reverse Mortgage may be the perfect financial option for a senior homeowner seeking additional cash for retirement.
Our Reverse Mortgage loan professional can help fulfill the wishes for a financially independent, enjoyable and worry-free retirement.
Frequently Asked Questions (by the homeowner)
Do I have to repay a Reverse Mortgage loan?
Yes, eventually. However, your payment is not due on your Reverse
Mortgage loan as long as you live in your home, it’s your primary residence, you maintain it according to FHA requirements, and you pay required
property taxes and insurance.
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the Reverse Mortgage requirements.
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the R
Frequently Asked Questions (by the homeowner)
Is any home eligible for a Reverse Mortgage?
Generally, single-family residences, two-to four-unit owner-occupied dwellings, townhouses, approved condominium units and some
manufactured homes are eligible for a Reverse Mortgage. The home must meet FHA minimum property standards. If home repairs are required, in some cases they can be completed after closing using funds from the Reverse Mortgage.
Are there income or credit score requirements necessary to qualify?
No. There are no credit score and generally no income requirements
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the R
Frequently Asked Questions (by the homeowner)
Does a Reverse Mortgage affect my eligibility for Social Security or Medicare benefits?
A Reverse Mortgage usually does not affect eligibility for Medicare or Social Security benefits. Some government benefits, such as Medicaid and
Supplemental Security Income (SSI), may be affected by a Reverse
Mortgage. You should consult a qualified professional to determine if there would be any impact to your government benefits.
How much money could I receive from a Reverse Mortgage?
In general, the older you are, the more valuable your home, and the lower your loan balance, the more money you can receive from a Reverse
Mortgage.
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the R
Frequently Asked Questions (by the homeowner)
Do I pay income taxes on the money I get from a Reverse Mortgage?
No. Because funds from Reverse Mortgages are considered loan proceeds and not income, the money you receive is not considered taxable income.
Are there any restrictions on how I use the money I receive?
No. You can use the money from your Reverse Mortgage loan any way you like. Many people put the proceeds into a line of credit account for home repairs or improvements. Others use it to pay for in-home health care, medical costs or property taxes. You can even use it for a vacation, a new car or to help your grandchildren pay their college expenses.
Use it however you want – it’s your money!
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the R
Other Considerations
Even though reverse mortgages do not affect public benefits such as Social Security and Medicare, the cash proceeds can impact eligibility for those who are receiving “needs based” state or local assistance. This is not
specific to a reverse mortgage but as to any excess funds that could change the qualifications on these types of programs.
Who is it NOT for?
Because there are typical costs associated with setting up a reverse
mortgage, (appraisal and origination charges) it is not recommended for people who do not intend to live in their home for a reasonable amount of years to realize its benefits.
Do I still own my home with a Reverse Mortgage?
Yes. You keep the title to your home; the lender does not become a title holder. You own and can remain in your home as long as you meet all the R
