IS A REVERSE MOTGAGE RIGHT FOR YOU?

---

There are a number of things to consider when deciding if a reverse mortgage is the right choice for you. That's why in order to qualify for an FHA HECM loan, participation in HUD-approved housing counseling is required. You'll understand how reverse mortgages work, what to expect during the process, and what to look for in a lender. You'll have the information you need to make informed decisions.

 To be eligible for a HECM reverse mortgage, the Federal Housing Administration (FHA) which provides a government guarantee to you, the Borrower(s), requires that all homeowners be at least age 62 to apply and loan proceeds available are based upon the age of the youngest Borrower. Certain exceptions apply for those situations where a non-borrowing spouse may be on title. If the home is not owned free and clear, then any existing mortgage must be paid off using the proceeds of the reverse mortgage loan, in addition to any other liens or encumbrances, at the time of closing. In addition to property eligibility, you must meet financial eligibility criteria as established by HUD. 

 A reverse mortgage typically does not become due and payable as long as you meet the loan obligations. For example, you must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, flood insurance and assessments in addition to maintaining the home property condition according to HUD/HA requirements. 

In the event of death of all Borrowers or in the event that the home ceases to be the primary residence for more than 12 months for all Borrowers, the Borrower’s estate can choose to repay the reverse mortgage or put the home up for sale as assisted by the Loan Servicer.

If the equity in the home is greater than the outstanding balance of the loan, the remaining equity belongs to the estate.

If the sale of the home is not enough to pay off the reverse mortgage, the lender must take a loss and request reimbursement from the FHA. No other assets are affected by a reverse mortgage. A Borrower protection for today’s reverse mortgage is known as “non-recourse”, wherein the property stands for the debt and no other estate investments, second homes, cars, and other valuable possessions or assets can be taken from the estate to pay off the outstanding reverse mortgage.

 The amount of proceeds that are available generally depends on four factors: age, current interest rate, appraised value of the home and government imposed lending limits. Please note that you may need to set aside additional funds from loan proceeds to pay for property charges 

There are several payment plan options to receive the proceeds from a reverse mortgage:

• Lump Sum – a lump sum of all cash available at closing.
• Tenure – equal monthly payments as long as the at least one Borrower lives in the home as their primary residence.
• Term – equal monthly payments for a fixed period of time.
• Line of Credit – draw any amount at any time from the line of credit with a revolving ability to repay and redraw in addition to a credit line growth rate.
• Any combination of payment plan options listed above with the ability to change the plan, based upon remaining funds at any time in the future. 

Unlike a Home Equity Line of Credit (HELOC), the HECM does not require the Borrower to make monthly mortgage payments and any existing mortgage or mandatory obligations must be paid off using the proceeds from the reverse mortgage loan.

Many seniors use the remaining proceeds to fund medical expenses, make home repairs or just keep the extra cash in case of an emergency for that “rainy day”. In addition, unlike a HELOC, the lender cannot reduce a HECM reverse mortgage line of credit.

With a reverse mortgage the amount that can be borrowed is determined by the HECM program formula that considers age, the current interest rate, and the appraised value of the home

.

As stated previously, with traditional loans the Borrower(s) is required to make monthly payments of principal and interest, however with a reverse mortgage, no monthly payment is required. Unlike a traditional mortgage loan, the loan is typically not due and payable as long as at least one Borrower lives in the home as their primary residence, continues to pay required property charges and maintains the property in good repair.

 The title to your property continues to be vested in the names of the Borrower(s) throughout the life of the loan so long as the loan is maintained by the Borrower(s) per the terms, conditions and requirements of the loan documentation and HUD guidelines.