Reverse Mortgage Archives

The Benefits of Reverse Mortgage

December 14, 2017 by Harold Branzuela

Reverse mortgage products are often misunderstood. A lot of eligible seniors shy away from the product because of the hefty fees associated with it. Other misconceptions stem from knowledge of old programs during the subprime lending era.

Old and outdated information about existing reverse mortgages may prevent seniors from reaping the wondrous benefits of a potential financial tool.

But before we dive deeper into the reverse mortgage realm, what exactly is a reverse mortgage?

Reverse mortgage defined

In simple terms, a reverse mortgage is a loan product specifically designed for senior homeowners aged 62 and above. The program allows the homeowner to use the benefits of homeownership and all those years of building up equity to buy or continue to own their existing home without the need to make any mortgage payments.

Its key features include:

Being able to stay and live in your home for as long as you want even if your loan balance is greater than the market value of your property
Payment can be through: a) a lump sum b) a line of credit c) an income stream, or d) a combination of these payment options
Borrowers are able to use the proceeds of the loan as they see fit, whether it is to pay for home improvements or to pay off certain debts
Borrowers may opt to pay taxes and insurance on their own OR set up a LESA to set aside the taxes and insurance to be paid by the reverse mortgage lender
NO monthly mortgage payments

A reverse mortgage only becomes due when the owner decides to sell his or her home, refinance back to a forward mortgage, or if he or she passes away. If the homeowner passes away and there is still some equity left on the property, the heirs hold rights to that equity. If, however, the homeowner lives for many years and passes away without equity on the property, there is no money that needs to be paid back because the loan is insured by the Federal Housing Administration (FHA).

Why seniors are now considering a reverse mortgage

Decades ago, reverse mortgages are a last resort for many. But recent data show that the product is starting to gain popularity.

While reverse mortgages were originated at a pace of 5,000 to 10,000 loans annually just over ten years ago, now, they are being originated at a pace of over 70,000 a year.

What could have driven such change?

The aging American population may take part of the blame. According a 2010 Census data, there were already over 40 million Americans aged 65 and above. Experts predict that just in a span of three decades, that number will double. On top of that, Americans are also living longer while the cost of health care and long term care continue to increase.

A 2016 GoBanking Rates survey revealed that about half of US families have NO retirement savings accounts. So what are they going to do when they’re already too weak to work and get a steady income? Where will they get the money to pay for elderly care? Is social security even enough to cover for all their needs?

For seniors approaching retirement, a reverse mortgage is an option worth considering.

What are the benefits of a reverse mortgage?

>> Increases your cash flow

Maintaining the lifestyle that we’re accustomed to during our working years may be hard to do financially during retirement. Given that most retirees have little to no money in their savings, they will have to depend on meager pension money which sadly is just not enough to allow them to live comfortably.

A reverse mortgage which allows the homeowner to tap into his or her home’s equity provides an easy solution to this dilemma. Since the borrower doesn’t have to shell out money every month to pay for the loan, he or she can instead use it to increase his or her cash flow and pay off some necessary expenses.

>> Extends the life of your retirement savings

Yes, you may start drawing from your social security benefits at the age of 62. But did you know that delaying your social security withdrawals can actually increase your benefits?

Per the IRS, that could be up to 6 to 8 percent of increase annually. The longer you delay tapping into your pension, the bigger the amount of benefits you will get.

The same principle can be applied to your 401k plan, another retirement savings account for many seniors. Once you start drawing funds from this account, you also have to start paying taxes.

Funds from a reverse mortgage loan can help you afford these delays, thereby extending the life of your retirement savings.

>> Mandatory counseling

To be able to successfully get a reverse mortgage, you need to take a counseling session with an independent, third-party HECM counselor certified by the HUD who will orient you about the program.

This is done to prevent homeowners from getting a loan with terms they don’t totally understand.

As you can probably recall, one of the primary reasons that fueled the 2008 crisis was the overwhelming number of borrowers who held loans they didn’t know the terms to.

Take for example, those most coveted adjustable-rate mortgages with very low initial interest rates. Most borrowers did not realize that their loans will eventually reset and their payments will double. The surprise caught many homeowners off-guard and ill-prepared, causing an avalanche of foreclosures.

With FHA’s HECM, the counseling certificate is made a requirement for the loan, ensuring that seniors know what’s in it for them.

>> Increases over time

Many seniors are worried about outliving their retirement savings – even those who have saved a significant amount of money in their accounts. Really, there’s no telling how the demands of life can affect you and your finances.

In this case, it’s great to know that your reverse mortgage money actually accumulates and increases in value over time if you don’t draw from it.

For example, you have a line of credit worth $100,000 and you ceased drawing from it for a decade and a half. After this period, your credit line will now be worth $300,000. Considering you have enough savings for that period, you would reap significant benefits after your funds run out given you took the reverse mortgage at the right time.

Every senior settles differently and therefore has their own unique needs. FHA’s reverse mortgage offering via the HECM program is designed to answer to these needs, especially at a time when they need it the most.

The Drawbacks of a Reverse Mortgage

December 12, 2017 by CHalmer

We all know what a reverse mortgage is. Well, perhaps the basics. It is a mortgage loan program specifically designed for senior homeowners.

One very common reverse mortgage program is the Home Equity Conversion Mortgage or the HECM. It is offered by the Federal Housing Administration. Just like any FHA loan, the HECM is government-guaranteed.

What does that mean? It means that a lending company or a bank provides the funds that will be loaned to the borrower. To lessen the risk, the FHA insures the lender. In case a borrower fails to pay the loan off, the FHA pays the lender the whole or a part of it.

Qualified senior homeowners may convert a portion or their entire home equity into money which can be used readily. These funds can be spent in whichever way the borrower chooses.

The most common would be to cover for medical expenses or to pay for the family’s monthly expenditures. Some also choose to use the money to buy a second property or to put as an investment.

Unlike other loans, the reverse mortgage loan does not become due the moment the borrower receives the money. In fact, it is the lender who will make the payments to the borrower. This payment can either be a lump sum or on a monthly basis, whichever way the borrower chooses.

So the question is, when does the loan become due? It will only be payable the moment the property is sold, the borrower chooses to move out of the house or the borrower dies.

Sounds like a really good program. Well, it truly is a loan that many can take advantage of. There are many pros to a reverse mortgage loan. If you want to learn more about the benefits of a reverse mortgage, click here.

Get Matched with a Lender, Click Here.

While there are good things about this program, it is not free of drawbacks. If not careful about the choices you make, a good program can backlash and cause you trouble.

For you to have a clearer picture, we have enumerated some of the disadvantages a reverse mortgage has. By knowing both its pros and cons, you will be able to figure out if this truly is a perfect choice for you.

1. Your mortgage may become due earlier than expected if you are not paying your property insurance, taxes and/or association fee diligently.

Yes, this scenario can happen. Many seniors misunderstand a reverse mortgage. They believe that it is the easy way to deal with any money problems. Most of them forget that it is still debt, and debts need to be repaid.

When you miss a few payments, it does not automatically mean you will be losing your home right away or you will begin paying the loan off. In most cases, lenders will try to help the homeowners in dealing with the missed payments.

However, if despite the intervention the issue still persists, lenders may step in. It can result to the mortgage becoming due prematurely.

For HECMs, there are ways to prevent this from happening. First, the borrower has to complete an HECM counseling course where all the details of a reverse mortgage are discussed. This includes the need to keep current on property insurance, taxes and/or homeowners association fees. Another preventive measure is if, after thorough evaluation, your lender sees that there is a risk that you may have trouble paying them, a part of the funds from the loan will be set aside for this purpose.

2. You are taking a mortgage during your retirement.

A reverse mortgage is a mortgage. Some people strive to be free and clear of a mortgage before they retire. Others reach the age of retirement but are still paying it off. The moment they become mortgage-free, it is a huge relief on their part.

While a reverse mortgage is different from other loans for the reason that the borrower does not make monthly payments, that does not mean that the debt won’t have to be paid back.

It is a loan after all, not a grant.

There will come a time that you have to start paying the money you have borrowed, with interest. So, before you spend the money on things that don’t grow your reserves, think about how you will be able to afford to pay the loan off when the time comes.

Would it be wiser to invest your money so it grows and you would not have to worry much when payback time comes?

Connect with a Lender, Click Here.

3. If you die, your children or your living spouse will have to start paying for the debt.

We have laid this one out clearly earlier. In an unfortunate event of the death of the borrower, the loan will become due. If you’re dead, who pays? Straight answer, your family pays the debts.

This won’t be a disadvantage if you have left them enough reserves to pay for it, or if they have enough income to pay for it themselves. But if they don’t have the capacity to make payments, they are at risk of losing the house.

There can be two scenarios, they can sell the property to repay the loan or the lender may take the home instead because the loan cannot be repaid. Whichever of the two happens, they end up in the same situation– they won’t be able to keep the house.

This brings us to another disadvantage.

4. You won’t be able to have a home to leave to your posterity.

If you do not have plans of having the property inherited by your children, you won’t see this as a problem. But if you have, a reverse mortgage can put an end to your plans.

The loan does not become due unless you move out or sell the property. But debt needs to be paid, it is only a matter of when. You can choose to start paying it even before it is due. But that still depends on the agreement you have on your reverse mortgage contract.

If you die, your children will be liable to pay the loan. There is a big change that in order to repay it, they will have to sell the home.

While these scenarios mentioned above sound so pessimistic, these are still possibilities. This is why you really have to ponder on taking a reverse mortgage. Do you need it? Does the loan work at your benefit? Does it put you on great risk for loss?

However, there are many ways a reverse mortgage can be useful to the senior, no doubt about that. Study your situation. Strategize your plan of action. Most of all, you must not hesitate on seeking for an expert’s help.

A lender knows how things work. Their input can be of great help when you are planning to avail of a reverse mortgage.

Do not forget to shop for lenders, so you can compare the terms and interest rates. By doing so, you will find a loan they best fit your unique needs.

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The Overlooked Benefits of Reverse Mortgage Everyone Must Know

September 26, 2017 by CHalmer

American seniors who own their homes during their retirement see them not just as houses but priceless possessions. The very structure that they call home can actually be a great source of wealth just waiting to be tapped.

Home Equity Conversion Mortgage

One reverse mortgage program that is popular with seniors is the Home Equity Conversion Mortgage or HECM.

This program is guaranteed by the Federal Housing Administration (FHA). It allows eligible senior homeowners to convert a part of their home equity into readily-usable money.

If you have been a responsible homeowner and borrower, the substantial amount home equity you have been all these years can now be put to good use. You can now use this to your advantage.

Get Matched with a Lender, Click Here.

What are the Benefits of Reverse Mortgage?

You Don’t Pay the Lender, The Lender Pays You

What sets a reverse mortgage program different from all the other loans in the market is its payment method.

In a standard mortgage loan, the lender provides you with the money which you can use to either purchase of a house or refinance an existing mortgage. To pay for the borrowed funds, you have to make monthly payments until the loan is paid in full.

Meanwhile, in a reverse mortgage, you do not pay the lender any amount. Instead, it is the lender who pays you. You can either be paid in a form of lump sum, a line of credit, monthly disbursement or a combination of these.

The Loan Does Not Become Due Unless the Property is Vacated

Another benefit of the reverse mortgage program is that it does not become due. You will not be required to pay the loan unless you move out of the house, less the property or die.

This does not mean that you are free from debt, however, you have a good amount of time to save up for it or grow your money so you won’t have to suffer once the bills come rolling in.

Connect with a Lender, Click Here.

You Get an HECM Counselling

An HECM counseling signals the start of the loan process. Do not worry, attending a counseling course does not oblige you to take the loan. As a matter of fact, it aims to help you determine if a reverse mortgage it truly right for you.

During the counseling, the senior is educated with everything there is to know about the HECM program. The counselor will talk the advantages and the disadvantages of having this loan, as well as the tax implications when taking this loan.

The counseling will help the senior decide whether or not a reverse mortgage is right for him/her. The HECM counseling is there to ensure that you make a well-informed decision.

You Have Total Control on Where and How to Use the Funds

There is no limit to where the funds can be used, it is at the borrower’s discretion.

The funds can cover emergency medical expenses, pay for your home’s utility, supplement existing funds for prescription drugs or even put up an investment account. You have total freedom to decide. It is best to use the funds to pay for something worthwhile or to invest it and earn more.

The reverse mortgage program presents a good opportunity for seniors to access readily-usable financing. Taking your time to study and do your research will help you find out if this loan is truly for you.

What Is a Reverse Mortgage: A Guide on Eligibility, Repayment and More

September 19, 2017 by Justin

A warning and an ensuing update. Reverse mortgages have been the subject of a flurry of developments where the FHA, as insurer of most of these mortgages, is concerned. Since its inception, a reverse mortgage has been designed for senior borrowers to draw funds from their equity-rich homes.

Because it works differently from that of a standard home loan, the reverse mortgage has drawn its fair share of curiosity and criticism. To understand this financial product better, here’s a 101 on getting a reverse mortgage.

Aside from reverse mortgages, or HECMs, that are backed by the government, there are private-label reverse mortgages as well. But because HECMs dominate the reverse mortgage today, the guidelines found here are applicable to the government-backed reverse mortgages.

FHA-approved lenders are accessible. Right this way.

What is a Reverse Mortgage: Top 10 Facts

Reverse mortgages are not your typical mortgages. First, there’s an age eligibility. Borrowers must be at least 62 years to qualify, although certain protections are afforded to spouses who are younger than 62. Age is an important factor in determining how much a borrower can get.

Second, they must own the home outright or paid down substantially their mortgages. This ensures that indeed the home has adequate equity to draw money upon.

Third and more importantly, reverse mortgages disburse funds to the borrowers in the form of a lump sum, a line of credit, or a periodic payment. These payments will continue until such time as the loan matures: when the borrower/s pass away, move out, or sell the home. This definitely runs reverse to how mortgages work traditionally.

Fourth, when it becomes due and payable, the loan must be paid off. The most usual route to paying off the loan is by selling the property based on its market value.

Fifth, the interest rate on a HECM reverse mortgage has an initial interest rate and an expected interest rate. The IIR is the note rate that accrues on an annual basis while the EIR exists to determine how much a borrower can qualify based on his/her home’s market value.

Sixth, the IIR won’t change in fixed-rate mortgages but will be variable in adjustable-rate mortgages. A borrower who opts for a fixed-rate mortgage will get a lump sum at closing while a borrower with a variable mortgage will get to choose among periodic disbursements, a line of credit, or a combination of both.

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Seventh, it’s important to emphasize that the borrower must be willing and able to pay property charges on the home. These cover the property taxes, the homeowners insurance, homeowners’ association fees, and so on. Failure to do so could lead to default.

Eighth, getting a HECM means paying the usual costs of getting a mortgage. Mortgage insurance premiums, origination fees, third party charges such as appraisal and title search, and servicing fees are part of a reverse mortgage’s cost.

Ninth, a reverse mortgage borrower must undergo counseling with a HUD-approved counselor to know if it is the right financial product.

Tenth, property types eligible for a HECM reverse mortgage are single-family homes, condo units in HUD-approved buildings, manufactured homes, and two-to-four unit homes in which the borrower occupies one unit. The borrower must continue to occupy the home as his/her primary residence.

How to Shop for a Reverse Mortgage

Being home equity loans, reverse mortgages have plenty of uses. For health care, debt consolidation, home improvement, and more. Older borrowers stand to benefit more because the higher the age, the bigger the amount one can borrow.

To ensure you get your equity and money’s worth, be sure you have checked all your possible options. If you settle for a reverse mortgage to help you in your retirement, make sure you get the right one.

Always shop for the best possible rates and don’t be afraid to ask questions. Be sure to talk with an HECM counselor about your future plans, especially on whether you can afford to pay the property charges.

Just like any financial product, it takes time to understand reverse mortgages. So take time to research, shop and decide.