Reverse Mortgage
Reverse Mortgage Requirements
To qualify for a reverse mortgage:
The borrower must be at least 62 years of age. There are no minimum income or credit requirements, but there are other requirements and homeowners should make sure that they qualify for the loan before they invest significant time or money into the process.
How Can I use the money?
For most reverse mortgages, the money can be used for any purpose; however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds.
How do I know if a Reverse Mortgage is right for me?
Before borrowing, applicants must seek third party financial counseling from a source which is approved by the Department of Housing and Urban Development (HUD). The counseling is a safeguard for the borrower and his/her family, to make sure the borrower completely understands what a reverse mortgage is and how one is obtained.
Are there any limits on amount I could recieve?
The current lending limit (the maximum the home can appraise for, no matter how much its worth) is $625,500. The maximum an originator can charge for a loan origination fee on a reverse mortgage is $6,000.
Can I lose my house?
During the loan and the remainder of life, you can not be asked to leave the property, as you still are the owner and deed holder. This is the case whether you outlast the performance of the loan or not. As far as your heirs go, they are still entitled to the property upon your passing. The estate will be settled as normal, the property passed on to your heirs and they will refinance out of the reverse mortgage. If they decide not to reside in property, they can sell the unit, payoff the reverse mortgage, and keep the rest of the monies of the estate as normal. They have one year, from the passing of the note holders, to settle the mortgage.
How is a Reverse Mortgage calculated?
The amount of money available to the consumer is determined by five primary factors:
- The appraised value of the property, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house.
- The interest rate, as determined by the U.S. Treasury 1 year T-Bill, the LIBOR index or 1 Year CMT.
- The age of the senior (The older the senior is, the more money he/she will receive).
- Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a "Tenure" payment. Borrowers receive them for the rest of their lives no matter how long they live.
- The value of the property, and whether that value is higher than the national loan limit set by HUD.
Is the income from a Reverse Mortgage taxable?
The money received (loan advances) from a reverse mortgage is not taxable and does not directly affect Social Security or Medicare benefits. However, an American Bar Association guide to reverse mortgages explains that if borrowers receive Medicaid, SSI, or other public benefits, loan advances will be counted as "liquid assets" if the money is kept in an account (savings, checking, etc.) past the end of the calendar month in which it is received. The borrower could then lose eligibility for such public programs if his or her total liquid assets (cash, generally) is then greater than those programs allow.
Who pays for insurance and Taxes?
It is important to note that the homeowner must ensure that taxes and insurance are kept current at all times. If either taxes or insurance lapse, it could result in a default on the reverse mortgage.
Are there any resrictions on how I use the money?
Once the reverse mortgage is established, there are no restrictions on how the funds are used. In addition to the tenure monthly payments, the borrower has the option of moving the entire amount of money into investments, or they can simply take the money and spend it as they wish.
Among the options of interest bearing instruments, the borrower can keep them with the lender and (These accounts grow by the same percentage as the interest rate of the loan), move the funds to a directed account with a financial specialist (This option is risky unless you direct the investment options of the financial specialist), or withdraw the funds and manage their investment themselves.
What are the costs involved?1) Mortgage Insurance: 2% (off the appraised value) 2) Origination Fee: The cap is 2% of the first $200,000 and 1% thereafter, with an overall cap of $6000. 3) Title Insurance 4) Title, Attorney, and County Recording Fees 5) Real Estate Appraisal $300–$500 6) Survey (may be required) $300–$500
In addition, a monthly service charge (between $25 and $35) is usually added monthly to the balance of the loan.
In all of these cases, the costs of a reverse mortgage can typically be financed with the proceeds of the loan itself, with the costs and fees being rolled directly into the principal balance of the loan, rather than paid by the borrower in cash.
While this does permit borrowers with little or no available cash to get a reverse mortgage, it means that the initial loan principal will be increased, and consequently, that the fees will begin accruing interest. Since there are no payments made during the course of the loan, the compound interest accrued on the principal plus fees are added to the principal of the loan.
How are the interest rates calculated on ARM's and Fixed Rate products?
Interest rates on reverse mortgages are determined on a program-by-program basis, because the loans are secured by the home itself, and backed by HUD, the interest rate should always be below any other available interest rate in the standard mortgage marketplace for an FHA reverse mortgage. Prior to 2007, all major reverse mortgage programs had adjustable interest rates. Such adjustable rate reverse mortgages are still being offered which are adjusted on a monthly, semi-annual, or annual rate up to a maximum rate.
Several lenders now offer FHA HECM reverse mortgages that have fixed interest rates. Some of these mortgages have interest rates that are similar to the current FHA/VA rate plus the mandatory mortgage insurance premium. Some fixed rate reverse mortgages limit the cash proceeds to half of that offered by adjustable rate reverse mortgages. The borrower(s) will be required to take out the entire amount offered at closing.
