Is a Reverse Mortgage a Good Idea?
It depends on your definition of ‘good’. Not to be flippant but the loan is designed to help those who can’t qualify for a standard mortgage because their income is too low to qualify. People older than 62 can access equity in their home up to roughly half of its value.
It is great to own your home free and clear or have a lot of equity built up. The problem is you cannot access the equity unless you sell the home or have enough income to qualify for a 1st mortgage or a Home Equity Line of Credit. Qualifying can be impossible for people living on a fixed income.
The idea behind this loan is to allow older people, whose major or only savings is represented by the equity in their home, the ability to stay in their home and access that equity. The fact is that many older Americans don’t have sufficient retirement income or savings to make either payments on a mortgage or cover living expenses. They have paid off their home but now can’t afford to live there.
The Reverse mortgage allows our seniors the option of using their savings as represented by their home equity to make their mortgage payments for them. The way you make payments is flexible, you have the option of paying some of it or all of or none of it every month. If you don’t choose to pay from your available savings you can elect to make no monthly payment and the amount of that payment will be added to your mortgage balance. You can continue to make payments from your equity for as long as you live in the home, even if you owe more than it’s worth.
It’s important to remember that with a Reverse Mortgage you still own your home exactly like you do when you have a standard mortgage.
The Reverse Mortgage Program is overseen and insured by FHA, the Federal Housing Administration and is officially named the Home Equity Conversion Mortgage (HECM).
Below is some information from the Hud.Gov web page.
If you’d like to talk about this program and if it is right for you contact me here:
Borrower Requirements
You must:
Be 62 years of age or older
Own the property outright or paid-down a considerable amount
Occupy the property as your principal residence
Not be delinquent on any federal debt
Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
Participate in a consumer information session given by a HUD- approved HECM counselor
Property Requirements
The following eligible property types must meet all FHA property standards and flood requirements:
Single family home or 2-4-unit home with one unit occupied by the borrower
HUD-approved condominium project
Manufactured home that meets FHA requirements
Financial Requirements
Income, assets, monthly living expenses, and credit history will be verified.
Timely payment of real estate taxes, hazard and flood insurance premiums will be verified
For adjustable interest rate mortgages, you can select one of the following payment plans:
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 in installments, at times and in an amount of your choosing until the line of credit is exhausted.
Modified Tenure - combination of line of credit and scheduled 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.
For fixed interest rate mortgages, you will receive the Single Disbursement Lump Sum payment plan.
Mortgage Amount Based On
The amount you may borrow will depend on:
Age of the youngest borrower or eligible non-borrowing spouse
Current interest rate; and
Lesser of:
appraised value;
the HECM FHA mortgage limit of $765,600; or
the sales price (only applicable to HECM for Purchase)
If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.
HECM Costs
You can pay for most of the costs of a HECM by financing them and having them paid from the proceeds of the loan. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan amount available to you.
The HECM loan includes several fees and charges, which includes: 1) mortgage insurance premiums (initial and annual) 2) third party charges 3) origination fee 4) interest and 5) servicing fees. The lender will discuss which fees and charges are mandatory.
You will be charged an initial mortgage insurance premium (MIP) at closing. The initial MIP will be 2%. Over the life of the loan, you will be charged an annual MIP that equals 0.5% of the outstanding mortgage balance.
Mortgage Insurance Premium
You will incur a cost for FHA mortgage insurance. The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium (MIP) as part of your loan.Third Party Charges
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.Origination Fee
You will pay an origination fee to compensate the lender for processing your HECM loan. A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home's value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.Servicing Fee
Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate or has a fixed interest rate. The lender may charge a monthly servicing fee of no more than $35 if the interest rate adjusts monthly. At loan closing, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance. Lenders may also choose to include the servicing fee in the mortgage interest rate. It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.
Don’t worry about sounding professional. Sound like you. There are over 1.5 billion websites out there, but your story is what’s going to separate this one from the rest. If you read the words back and don’t hear your own voice in your head, that’s a good sign you still have more work to do.
Be clear, be confident and don’t overthink it. The beauty of your story is that it’s going to continue to evolve and your site can evolve with it. Your goal should be to make it feel right for right now. Later will take care of itself. It always does.
