Types of Reverse Mortgage Loans
There are several distinct reverse mortgage equity release products that offer the flexibility to customize a reverse mortgage specific to your financial needs and objectives. Loan Advisors will work with you and your advisors to help you assess your individual situation and choose the product that best meets your needs.FHA – HECM (Home Equity Conversion Mortgage)
* Guaranteed by FHA/HUD
* Flexible Income Payment Option
* Growing Line of Credit
* Maximum Lending Limit – (varies by city and county)
HomeKeeper by Fannie Mae
* Guaranteed by Fannie Mae
* No Line of Credit Growth
* Generally lower closing costs
* Maximum Lending Limit – (varies by city and county)
Private Cash Account
* Generally for homes well over $500,000 (Contact us for availability in your State)
* Two (2) private Reverse Mortgages:
Cash Account Standard and Cash Account Zero Point were born in 2001 and 2003,respectively.
These five (5) Reverse Mortgages offer the opportunity for virtually all Senior Citizens to utilize the equity in their homes to provide needed financial security.
* Flexible Income Payment Options
* Growing Line of Credit
* Generally has higher closing costs
* No Maximum Lending Limit
How To Buy A Home With A Reverse Mortgage
First a reverse mortgage is a lump sum payment or annuity that is paid from a lender or insurance company to supplement or provide income. As the homeowner you repay the mortgage obligation when you sell or vacate the residence. When you die your estate is responsible to pay back the loan. The amount owed will never exceed the value of your home. If the home is sold and the proceeds exceed the amount owed, the excess money goes back to you or in the case of your death, your estate.
Further, when you buy a home with a reverse mortgage it is not considered taxable income and does not affect Social Security or Medicare benefits.
A home equity loan on the other hand, is a mortgage loan that is secured by the residual equity in your home. To calculate equity, you subtract mortgage debt from your home value. Home equity loans allow a homeowner to make repairs or other home improvements, refinance other debt, or use for miscellaneous purposes. Unlike a home equity line of credit, a home equity loan is an amortizing loan. When you buy a home with a reverse mortgage you are paid either a lump sum amount or annuity based on the amount of equity in your home. For example, a monthly payment of $1,000 for the next 120 months would be a 10 year monthly annuity. Aside from programs which help you buy a home with a reverse mortgage there are various other types of reverse mortgages. One type is for homeowners who want to tap into their equity but not draw out the entire amount. Here an annuity or lump sum would be paid out. Another reverse mortgage program is a home equity conversion mortgage. Affiliated with FHA (the Federal Housing Administration) this program combines the features of a home equity loan and a line of credit. Here you receive a fixed payment and can also draw on a credit line for additional cash.The buy a home with a reverse mortgage program uses the new home as a source of repayment. You make a down payment and use the reverse mortgage loan for the rest of the home’s purchase price. You repay the loan with interest and other financing costs, when you sell the home, no longer use it as a primary residence, or in the case of your death, your estate would cover the outstanding loan. Most types of homes are eligible.Tremendous growth in the housing market over the last few years has given many homeowners a considerable boast in equity. As a result, some of these homeowners are now looking to buy a home with a reverse mortgage. Take for instance, the homeowners who purchased their homes in the early 1960’s for a modest price and now in their retirement years find their home has doubled or even tripled in value.
With this kind of equity to play with many homeowners are looking to buy a home with a reverse mortgage. This could be a country home or a cottage property. Or, the funds could even be used for luxury vacations, recreational vehicles, boats – you name it!
If you were to buy a home with a reverse mortgage you would be able to pay cash for the second ‘vacation’ home while continuing to live in your primary residence for as long as you wish or are able. Once you die, your primary residence would be sold to pay back your reverse mortgage loan, while the second home would become part of your estate.
To participate in these reverse mortgage programs, you and any co-borrowers must be at least age 62. In order to buy a home with a reverse mortgage you also must have no mortgage debt on your home. Further there are usually no income requirements to participate in the above mentioned programs.
A positive feature of reverse mortgage programs is that you’re never obligated for more than the loan balance or the value of the property, whichever is less; no assets other than the home are used to repay the debt. A reverse mortgage has neither a fixed maturity date nor a fixed mortgage amount.
If you’re seriously looking to buy a home with a reverse mortgage it’s important that you do your homework. Take the time to comparison shop between lenders. Seeking the advice of at least three reverse mortgage lenders is always wise.
Reverse Mortgage
A reverse mortgage (RM) is a loan in which a lender pays you while you continue to live in your home. The payments can be made monthly, or in a lump sum, or in the form of a line of credit. You don’t have to pay it back while you still live in your home.To be eligible for a reverse mortgage, you must own your home. The amount you may borrow is generally based on your age (62 is typical), how much home equity you have, and the loan rate.As a reverse mortgage borrower, you do not give up title to your home, and the money from an RM can be used for any purpose. However, you are responsible for paying all real estate taxes and maintaining your home.
If you own your own home and are at least 62 years of age, a reverse mortgage provides an opportunity to convert your home equity into cash. In the most basic terms, the reverse mortgage allows you to take out a loan against the equity in your home, but you don’t have to repay the loan during your lifetime as long as you are living in the home and have not sold it. If you want to increase the amount of money available to fund your retirement, but don’t like the idea of making payments on a loan, a reverse mortgage is an option worth considering.How They Work
With a reverse mortgage, a lender makes payments to you based on a percentage of the value in your home. When you no longer occupy the property, the lender sells it in order to recover the money that was paid out to you.While there are several types of reverse mortgages, including those offered by private lenders, they generally share the following features:
- Older homeowners are offered larger loan amounts than younger homeowners. More expensive homes qualify for larger loans.- A reverse mortgage must be the primary debt against the house. Other lenders must be repaid or agree to subordinate their loans to the primary mortgage holder.- Financing fees can be included in the cost of the loan.- The lender can request repayment in the event you fail to maintain the property, fail to keep the property insured, fail to pay your property taxes, declare bankruptcy, abandon the property, or commit fraud. The lender may also request repayment if the home is condemned or if you add a new owner to the property’s title, sublet all or part of the property, change the property’s zoning classification, or take out additional loans against the property.
HECM Loans
Reverse mortgages have been around since the 1960s, but the most common reverse mortgage is a federally-insured home equity conversion mortgage (HECM). These mortgages were first offered in 1989 and are provided by the
U.S. Department of Housing and Urban Development (HUD). HECMs are the only reverse mortgages issued by the federal government, which limits the costs to borrowers and guarantees that lenders will meet the obligations. The primary drawback to HECMs is that the maximum loan amount is limited.Non-HECM
Non-HECM reverse mortgages are available from a variety of lending institutions. The primary advantage of these reverse mortgages is that they offer loans in amounts that are higher than the HEMC limit. One of the drawbacks of non-HECM loans is that they are not federally insured and can be significantly more expensive than HECM loans.Total Annual Loan Cost (TALC)
Although the interest rate on an HECM mortgage is set by the government, and the origination cost of an HECM loan is limited to 2% of the value of your home, the total cost of the loan can still vary by lender. Furthermore, in looking for a lender, borrowers must consider third-party closing costs, mortgage insurance, and the servicing fee. To assist borrowers in comparing mortgage costs, the federal ‘truth-in-lending law’ requires mortgage providers to present borrowers with a cost disclosure in the form of the total annual loan cost (TALC). Do be sure to use this number when comparing loans from different vendors; just keep in mind that the actual costs of a reverse mortgage will depend largely on the income options selected. Income Options
HECM reverse mortgages provide the widest variety of income generating options, including lump-sum payouts, credit lines, monthly cash advances, or any combination of these.The credit line is perhaps the most interesting feature of an HECM loan because the amount of money available to the borrower increases over time by the amount of interest. Non-HECM loans offer fewer income options.Interest Rates
The interest rate on HECM reverse mortgages is tied to the one-year
U.S. Treasury security rate. Borrowers have the option to select an interest rate that can change every year or one that can change every month. A yearly adjustable rate changes by the same rate as any increase or decrease in the one-year
U.S. Treasury security rate. This annual adjustable rate is capped at 2% per year or 5% over the life of the loan. A monthly adjustable rate mortgage begins with a lower interest rate than the annual rate mortgage and adjusts each month. It can move up or down 10% over the life of the loan.Plan Carefully
Taking out a loan against your home is a big decision that will impact your current finances and the estate that you leave to your heirs. There are substantial costs involved, including loan origination, servicing, and interest. You also need to remember that, with a reverse mortgage, your debt increases over time due to the interest on the loan. If you change your mind about the loan, or need to move out of the property due to health reasons, proceeds from the sale of the property are used to pay off the reverse mortgage. Depending on the size of the loan and the value of the property, there may be little or no money remaining after the loan is repaid.Before taking out a reverse mortgage, you should research the topic thoroughly, compare costs from a variety of lenders, and read all disclosure documents. While investing the proceeds from a reverse mortgage is generally not advisable because of the need to recoup the costs of the loan plus the interest, the income from a reverse mortgage may provide an opportunity to refocus other elements of your investment portfolio. Prior to assuming the mortgage, consider the cash flow the reverse mortgage will provide and review the implications this new source of income will have on your overall investment strategy.
