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Reverse Mortgage Information

Basic Reverse Mortgage Information

Reverse Mortgage Definition

A reverse mortgage is a federal loan available to seniors aged 62 or older and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves, they can be out of the home for up to 364 consecutive days. To qualify for a Reverse Mortgage the borrower must be at least 62 years of age. There are no minimum income, nor credit requirements, however there are other requirements. The application must qualify to afford the home, to cover taxes, insurance, utilities, water, gas, etc. For most reverse mortgages, the money can be used for any purpose, however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage.

Reverse Mortgage Myths

Reverse Mortgages are a scam
A reverse mortgage is a well thought out, very creative and highly effective solution to a societal problem the inability of some seniors to have enough money to get through their retirement years. With people living longer than they might have anticipated and with many people’s savings diminished by the economic downturn, being able to use your home equity is one of the sources of support and comfort available.
Reverse Mortgages are too good to be true
Reverse mortgages are not a fantasy. They are by no means a trick. You worked hard to earn the equity in your home and you deserve the chance to use that money if and when you need it. There is a cost attached to a reverse mortgage, as with every loan. And there are responsibilities that come with it.
Reverse Mortgages are a last resort loan
In some borrower’s cases they may be. For others they may not be. You may choose to use a reverse mortgage to help you cover your expenses while you wait for your retirement savings account to go back to their pre-recession levels. You may use it to help you through until home values recover and you can sell your home for a higher price. A reverse mortgage, like social security, medicare/Medicaid, IRs and 401-Ks, is an option in a retirement toolbox?and different situations require different tools.
Reverse Mortgages are expensive
Reverse mortgage fees are similar to those for any other mortgage product. The one additional fee is the Mortgage Insurance Premium, which is paid to the government mortgage insurance fund to protect you in the event the loan balance grows larger than the value of your home. The HECM Saver has practically eliminated the upfront MIP. Other traditional fees are also sometimes waived by the lender.
The bank owns your home
No, you continue to own your home. And when you pass on, your heirs own your home, though they must then pay back the reverse mortgage or sell the property and keep the remaining balance. If you are in arrears on taxes and insurance, you are in default and, to keep your home, you must work with the lender to catch up on your obligations.

Reverse Mortgage Terms

Current Rate

The current HECM reverse mortgage rate is often the rate quoted. It’s the base rate of the loan. From the initial current rate, monthly mip and indexes will be summed to give an APR.

Margin

The margin of the HECM Libor reverse mortgage is the initial rate in which the rate begins. This margin is set and will not fluctuate. At a minimum, the margin is the lowest an adjustable rate reverse mortgage can be.

Index

The index of the HECM Libor reverse mortgage is the rate that adjusts. The index plus the margin is the rate. The index changes monthly based upon the LIBOR, or the London Interbank Offered Rate.

Cash Lump Sum

A HECM Reverse Mortgage allows for the qualifying borrower to access his or her proceeds in a lump sum. In other words, the borrower is able to receive a check, or wire, for all the money available.

Line of Credit

A HECM Libor reverse mortgage allows for the borrower to keep his or her proceeds in a line of credit. This line of credit can be accessed through the lender. Any amount can be withdrawn up to once a month.

Monthly Servicing

Lenders or their agents provide servicing throughout the life of the HECM. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with loan requirements such as paying real estate taxes and hazard insurance premium. Lenders may charge a monthly servicing fee of no more than $30 if the loan has an annually adjusting interest rate and $35 if the interest rate adjusts monthly. At loan origination, the lender sets aside the servicing fee and deducts the fee from your available funds. Each month the monthly servicing fee is added to your loan balance.