Frequently Asked Questions
REVERSE MORTGAGES TAP EQUITY FOR RETIREMENT:
Today, reputable lending institutions require that borrowers receive counseling about the risks and pitfalls before committing to a reverse mortgage.
How Does a Reverse Mortgage Work?
Reverse mortgages allow a home owner to borrow equity. Instead of making payments to the lender, the lender makes payments to the borrower. Payments can be received for as long as the borrower occupies the home in the following ways: A lump sum, monthly through a line of credit or a combination of the above. The loan is only repaid when the borrower can no longer live in the home.
Who can Qualify for a Reverse Mortgage
Anybody over the age of 62 who owns a home can qualify for a reverse mortgage. Generally, the older the borrower is the higher loan amount they will be eligible for, in comparison to the value of the home, if there is adequate equity in the home. Existing mortgage(s) can be paid off. Any deferred maintenance or repairs will be required, if necessary, as determined by the appraiser. Credit scores, credit history and minimum incomes are not considered. In most cases a borrower should decide that they will stay in the home for at least 5 years to justify the costs.How Much Do Reverse Mortgages Cost?
As with a regular loan, borrowers pay fees to obtain the money. These fees are rolled into the loan and financed. Because there are no "standard charges," the fees will vary depending on the lender, third-party vendors and the type of loan selected. But at this point in time most fees are very similar. Basically, borrowers pay for: Mortgage insurance premiums, Monthly lender fees for monthly disbursements, origination fees and normal closing costs for appraisals, and Attorney fees.
In most cases, unless it is necessary to pay off an existing mortgage, establishing a line of credit with periodic payments, usually proves the most advantageous, as the line increases annually in relationship to the value of the property and the interest is only charged on the amount actually received.
How Much Can You Borrow?
The amount of loan available depends on the type of loan program selected, the value of the home, the borrower's age and the property location. Currently FHA loans have a maximum limit of $362,790.00. While others offered as proprietary products may go to $417,000.00, and there are new jumbo loan programs being developed to exceed that amount.
The monthly payment available from this loan is variable, but the one usually recommended is actuarially based and each individual should verify how long payments will last. One should recognize all the charges are deducted from the loan and that over 40%of the cost is for the insurance to protect the borrower and his heirs by limiting the repayment amount to the market price of the home at time of sale.
What Type of Programs are available?
A handful of lenders are now offering fixed rate loans however the bulk of other reverse mortgage programs are financed through an adjustable rate mortgage loan. The interest adjusts monthly. The most popular type of reverse mortgage today is the Home Equity Conversion Mortgage, insured by the U.S. Department of Housing and Urban Development (HUD).USES OF REVERSE MORTGAGE PROCEEDS TO BENEFIT BORROWER:
- Payoff existing loans to improve cash flow
- Pay excessive health care costs
- Use line of credit instead of drawing on IRA's or other assets
- Supplement pension and social security income for living expenses
- Make needed home repairs
- Downsize housing and purchase smaller home preserving cash reserves
- Pay for home care avoiding Medicaid spend down
