“Reverse Mortgage” is a type of mortgage in which a homeowner can borrow money against the value of the property. The mortgage loan does not require repayment until the borrower dies or the home is sold. It is called reverse because the lender pays the homeowner.
- Reverse mortgage provides additional income for people in their retirement;
- Credit is not relevant and often unchecked;
- No income requirement;
- No monthly payments for as long as you continue to live in the home;
- Property serves as a collateral;
- You will never owe more than the value of your home if you sell to repay the loan;
- You continue to live and own the house and cannot be forced to leave as long as you continue paying your property taxes, insurance and maintain the home.
Types of Reverse Mortgage:
1. Home Equity Conversion Mortgage (HECM) – This program is offered by the Department of Housing and Urban Development (HUD) and is insured by the Federal Housing Administration (FHA). This is the most popular reverse mortgage, accounting to about 95% of all reverse mortgage loans. There used to be two (2) types of HECM programs: (a) Traditional HECM Standard Loan – All costs associated with the loan are paid from the proceeds of the loan or financing them, and (b) HECM Saver Loan – borrower pay lower upfront costs but do not receive as much money as they would with a HECM Standard loan. These programs were discontinued as of September 30, 2013. Now, there is only one Reverse Mortgage type, the Home Equity Conversion Mortgage.
2. Proprietary Reverse Mortgage –This type of program is offered by banks, credit unions and other financial companies designed for people with very high value homes.
Depending on the type of loan, borrowers may be able to receive payments as (a) lump sum, (b) line or credit, (c) fixed monthly payment for a specific period of time or as long as they live in the house, or (d) combination of payment options. The money received on reverse mortgage is tax-free and can be used for any purpose.
HECM is also used to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and sales price plus closing costs.
The amount a borrower will get depends on (a) age of the youngest borrower, (b) current interest rate, (c) lesser of appraised value or the HECM FHA mortgage limit and (d) Initial Mortgage Insurance Premium.
- Must be 62 years of age (the youngest borrower, if married);
- Own the property outright or owe little on the mortgage;
- Must occupy the property as primary residence;
- Not delinquent on any federal debt;
- Must continue paying taxes and insurance;
- Must maintain the property in good condition;
- Participate in a consumer counseling session by a HUD approved HECM Counselor.
- Must meet all FHA property standards and flood requirements;
- Single family home or 2 – 4 home with one unit occupied by the borrower;
- A HUD-approved condominium project;
- A Manufactured home that meets FHA requirements.
- Tenure – An equal monthly payments as long as one borrower occupies the property as a primary residence;
- Term – An equal monthly payments for a fixed period of months;
- Line of Credit – An unscheduled payments or installments in a specific amount until the entire line of credit is exhausted;
- Modified Tenure – A combination of Line of Credit and monthly payments for as long as you remain in the home;
- Modified Term – A Combination of Line of Credit and monthly payments for a fixed period of months;
- Single Disbursement Lump Sum – a one time, single payment at closing.
HECM Costs include: (a) Mortgage Insurance Premium, (b) Third Party Charges, (c) Origination Fee, and (d) Servicing Fee. For details, please contact one of our HECM Specialists now.