Reverse Mortgages – Things to Know

You’ve seen them on TV – some of our favorite actors like James Garner  or Robert Wagner touting Reverse Mortgages.  My defenses went up immediately and yet I trusted James Garner so I had to listen.  But maybe that was the point, get unsuspecting seniors to see a trusted face and then get sucked in.  I thought about my own parents and did not want them to be duped by anyone and so I investigated Reverse Mortgages a bit more. 

 

Top Ten Things to Know about Reverse Mortages or HECM (Home equity conversion mortgage) provided by Homes and Communities, Housing and Urban Development

1.  What is a Reverse Mortgage?  It is a loan against your home that you do not have to pay back for as long as you live there.  You can turn the value of your home into cash without having to move or to repay the loan each month.  A Reverse Mortgage allows a homeowner to convert a portion of the equity built up over the years of home mortgage payments to cash which may be paid to you in several ways:

1. all at once, in a single lump sum of cash;
2. as a regular monthly cash advance;
3. as a “creditline” account that lets you decide when and how much of your available cash is paid to you;
4. as a combination of these payment methods.

Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence, die, or permanently move out.  The U.S. Department of Housing and Urban Development, HUDs Reverse Mortgage is a federally insured private loan which allows seniors to supplement social security, meet unexpected medical expenses, make home improvements, and more.

2.  Can I qualify for a HUD Reverse Mortgage?  The borrower must be 62 years of age or older; own your home outright or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse mortgage; and must live in the home.  You are also required to receive consumer information from a HUD approved counselor prior to obtaining the mortgage.

3.  Can I apply if I didn’t buy my present house with FHA mortgage insurance?  Yes, you can.  It doesn’t matter if you didn’t buy your home with an FHA-insured mortgage.  Your new HUD Reverse Mortgage will be a new FHA-insured mortgage loan.

4.  What types of home are eligible?  Your home must be a single family dwelling or a two-to-four unit property that you own and occupy.  Townhomes, detached homes, condominium units, and some manufactured homes are eligible.

5.  What’s the difference between a reverse mortgage and a bank home equity loan?  With a traditional second mortgage or a home equity line of credit (HELOC) you must have sufficient income versus debt ratio to qualify and you are required to make monthly payments.  The reverse mortgage is different:

• it pays you and is available regardless of your current income
• the amount you borrow depends on your age, current interest rate and appraised value of your home, whichever is less
• generally, the more valuable your home and the older you are, the lower the interest, the more you can borrow
• you don’t make payments because the loan is not due as long as the house is your principal residence
• you are still required to pay your homeowner’s insurance, real estate taxes, utilities and other conventional payments
• you cannot be foreclosed or forced to vacate your house because of missed mortgage payments

6.  Can the lender take my home away if I outlive the loan?  No.  You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keep up the taxes and insurance.  You can never owe more than your home’s value.

7.  Will I still have an estate that I can leave to my heirs?  When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees to the lender.  The remaining equity in your home, if any, belongs to you or your heirs.  This debt will not be passed along to the estate or heirs.

8.  How much money can I get from my house?  The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.

9.  Should I use an estate planning service to find a reverse mortgage?  HUD does not recommend using an estate planning service or any service that charges a fee just for referring a borrower to a lender. HUD provides this information without cost and HUD approved housing counseling agencies are available for free, to provide information.  Call 1-800-569-4287, toll free for the name and location of a HUD approved housing counseling agency near you.

10.  How do I receive my payments?  You have five options:

1. Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
2. Term – equal monthly payments for a fixed period of months selected.
3. Line of Credit – unscheduled payments or installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted.
4. Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
5. Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

 It’s important to note that the money borrowed can be used for practically anything you need.  For example: to purchase a second home.  If you are interested in a Reverse Mortgage and live or plan to live in the Blue Ridge area – please contact Jim Johnstone, Attorney and Reverse Mortgage Advisor at 706-455-1012.  Please let Jim know that I referred you.

 Donna Yates, Realtor proudly serving the North Georgia Mountains.  For great mountain properties for sale, visit   www.move2northgeorgia.netThe information in this post is deemed reliable but is not guaranteed.  Source of information in this post:  Homes and Communities, U. S. Department of Housing and Urban Development.  Be sure to consult with an attorney and the experts in this field.  Do not rely on everything you read on the internet – do as much research on your own or have a family member or trusted friend help guide you.