Reverse Mortgage Information

Principle Advantages:
 Remain independent - A reverse mortgage allows you to remain in your home and retain home ownership.
 No monthly mortgage payments.  - The money you receive from your reverse mortgage never requires a monthly payment.
Tax-free money - Money is tax free and will not affect your Social Security or Medicare benefits.
 Freedom and flexibility  - The money you get from a reverse mortgage is yours to use in any way you choose.

When looking for reverse mortgage information, borrowers have to keep many different things in mind.  The reverse mortgage differs from a forward mortgage in that the borrower makes no monthly payments to retire the loan, rather, the mortgage pays the borrower.  So the information most people look for on their reverse mortgage is most often related to the costs, the amount of money they will receive, the margin they have to pay (which affects their interest rate and the amount of money they can receive) and the service they can get from their originator. 

Typically, when borrowers begin seeking information about a reverse mortgage, they look at the bottom line – how much money will I get?  But there is so much more reverse mortgage information that borrowers really need to know.  For example, the amount of money a borrower can receive is based on several things: the age(s) of the borrower(s), the value of the property or the HUD lending limit for the area (whichever is less), the interest the borrower(s) pay for the loan and the costs of the loan.  Borrowers often review the reverse mortgage information papers and compare one quote to another and key in on certain elements while forgetting to look at others.  For those borrowers who are only concerned with getting the absolute most money out of the transaction, in other words they have an extreme need for cash now, they may not care about all the other information pertaining to their reverse mortgage, but for those who are also concerned about things like equity protection, it pays to know about all the elements.

The margin is a particularly important piece or information on every reverse mortgage transaction.  This is a set percentage which is added to an index to determine the final interest rate that a borrower accrues interest on the loan.  In other words, this will determine how much you or your heirs will owe when the loan is eventually repaid.  Sometimes when borrowers compare jumbo or proprietary programs with much higher rates and margins to the HUD HECM, they may receive more money at loan funding (and sometimes the difference is not very great), but if you look at the amortization schedule, the higher interest rate erodes the equity at a much greater rate.  If a borrower’s goal is to receive the absolute most amount of money possible this may not make a difference, but if the up-front cash differential between the two programs is not important, the equity retention may be worth looking at.

The next piece of reverse mortgage information that can also be beneficial to borrowers is to know what options are available.  Many senior borrowers like the sound of a fixed rate mortgage, and there are fixed rate reverse mortgages available at attractive rates.  However, the information that often escapes many seniors looking at these reverse mortgages is that they are only available if the borrower is taking a one-time distribution.  In other words, the fixed rate is not available if the borrower is looking for a reverse mortgage with the monthly payment or the line of credit option.  This type of reverse mortgage information is extremely important for seniors and their financial advisors to know.  If a senior borrower is paying off an existing debt and is using the funds for that purpose or has other plans for the funds, they may not mind receiving all the funds at one time.  However, need based programs such as Medicaid could be forfeited if there were funds in their account above the allowable limit.  Therefore, it may not be beneficial for some seniors to access all of their reverse mortgage funds all at once and this information is especially important to them.

The last piece of reverse mortgage information that is important but often goes unchecked is the service the company can provide from which you choose to obtain your reverse mortgage.  How much and what type of experience does the management and ownership have?  Is the company HUD approved (which they should be to be offering the HUD HECM program in the first place).  Are they members of the National Reverse Mortgage Lenders Association, an association which has the highest ethical standards and requires that members adhere to those standards?  Is that company a member of the Better Business Bureau?  This is all information some reverse mortgage companies would rather you not ask, but it is very important.  At All Reverse Mortgage Company, our Senior Team has designed their own product and sold it on Wall Street.   We have not only extensive experience originating reverse mortgage loans, but have worked with reverse mortgage services, have insured the product with the Federal Housing Administration and taught warehouse banks house to fund the loans.  We bring a much more in-depth level of reverse mortgage information to the transaction so that our borrowers’ loans are originated quickly, efficiently and without unnecessary delays. 

Information about Reverse Mortgage Calculators

The Reverse Mortgage Loan Calculator is a system designed by the Federal Housing Administration that determines a Senior Homeowner’s eligibility for a Reverse Mortgage Transaction.  The calculator uses a formula designed by the FHA to factor in a borrower’s age, home value or government lending limit (whichever is less) and current market interest rates to determine exactly how much money can be obtained through the reverse mortgage.

Age is factored into the equation through life expectancy tables.  Meaning the older the borrower is, the more money they are going to qualify for starting from the youngest age eligible of 62 going all the way up to a 100 year cap for the table.  In the case where a borrower is over the age of 100, they would qualify for the same amount as a 100 year old because that is where the tables stop.  Next the interest rate is taken into consideration.  There are two interest rates disclosed for all Reverse Mortgage Loans.  The interest rate that is factored into the equation is known as the “expected rate”.  This rate consists of the 10 year index (which is variable) plus the borrower’s margin.  The Higher the rates are at the time the calculator is ran, the lower the overall total amount to a borrower will be.  There is however a floor rate of 5.5%.  Any interest rate below 5.5% will no longer increase the amount of proceeds available through the Reverse Mortgage.  Lastly, the borrower’s home value or government lending limit is factored into the equation.  Based on a borrower’s age and the interest rate available they will be eligible to receive a percentage of this final value.  This value can range from somewhere around 50% (62 year old) to sometimes as high as 80% (100 year old).

One other function that a Reverse Mortgage Calculator does is calculate the Mortgage Insurance Premium, Loan Origination and miscellaneous third party closing costs that are financed through the Reverse Mortgage Transaction.  The Calculator is able to figure these numbers very easily because the Reverse Mortgage program is government insured and regulated and there are set fees on these loans.

Line of Credit Option:

The Line of Credit feature allows you to access your money only when needed, which in return increases your retained equity over the life of your reverse mortgage.  All funds left in your line of credit are expected to grow in availability 3-6% per year as you get older.  This is not to be construed with “earning interest” but rather gaining with time further borrowing ability.

Information about Reverse Mortgage Costs:

NOTE: Reverse Mortgage Fees are financed prior to the net amount available to you. Fees charged through your reverse mortgage are federally regulated, no costs are ever out-of-pocket.

Mortgage Insurance: 2% of Principle Lending Limit- The Mortgage Insurance Premium (MIP) is paid to the government to insure your reverse mortgage. The government makes several safeguards and guarantees possible from the mortgage insurance collected.

Origination Fee: Up to $6,000 - This flat fee is paid to All Reverse Mortgage Lenders for conducting all aspects of origination through processing and the closing of your reverse mortgage.

“Other Closing Costs” Estimate $1,500-$2,500- This amount includes all standard 3rd party fees which are associated with any mortgage finance transaction (reverse or traditional mortgages) These 3rd party costs include title, escrow, notary, recordings, appraisal etc. (see good faith estimate for a detailed summary)

Monthly Servicing Fee $25-35 / Month - The monthly servicing fee is added to your principle balance each month of the calendar year and pay for the servicing of your reverse mortgage. The servicing fee makes it possible for you to receive monthly statements and access your available proceeds. The servicing company will also allow for you to change the way you desire your proceeds even after closing your reverse mortgage.

Retained Equity Information:

Most illustration assume the future value of your home appreciating at an annual rate of 4%. The History of appreciation may be higher and is used for illustration purposes only. The Equity left over in your estate is yours to keep or transfer to your heirs after you sell or no longer occupy your home. The remaining equity in your home depends on a number of factors including how long you live, how much interest you accrue and how much of the available money you use.
 
Fact #1 - by taking a reverse mortgage you are reducing the taxable estate
Fact #2 - your estate may deduct the interest accrued when the reverse mortgage is paid off 

True or False:

1. If I get a reverse mortgage, that means the bank holds title to my home. False. Title does not get transferred into the bank’s name. Throughout the life of the loan, you own your home.

2. Even though I have done my research on reverse mortgages and fully understand the product, I still have to obtain reverse mortgage counseling. True. All programs require independent, third party counseling by an approved entity, which includes HUD, Fannie Mae or Jumbo proprietary programs.

3. I am not allowed to hold title in my trust. False. The lending institutions will allow you to hold title in your trust as long as you meet all of the lender’s and/or HUD’s guidelines.

4. If I decide to sell my home, the bank will make me pay back the loan and will collect a portion of the appreciation. False. The lender will only collect the amount that is due to them. If the loan balance is larger than the home value, the lender will only collect the proceeds from the sale. You can never owe more than what your home is worth.

5. If I don’t want to pay my taxes and insurance, the lender can set aside a portion of the loan funds and pay them for me. True. If you would like to impound the taxes and insurance, depending upon the lender, they can arrange that for you.

6. I must have good credit to qualify for a reverse mortgage. False. The lender will run a credit report for tax and federal liens. All recorded liens must be paid off and property taxes must be paid current at the time of closing so the lender can take first position.

7. My house must be in prime condition if I am to be considered for a reverse mortgage.
False. The lender requires that the home meet certain guidelines. If you are considering a Home Equity Conversion Mortgage, it must also meet HUD’s requirements. You may also qualify for a repair set-aside if work needs to be done on your home. Check with your lender for more information.

8. I am allowed to change my payment plan after the close of escrow. True. You may contact the servicing department and make arrangements to change your plan for a small fee.*

9. The only homeowners that get a reverse mortgage are seniors who can’t afford to make their monthly mortgage payments. False. We have found that seniors will use the money to go on vacation, buy a new car, remodel their home, pay for their grandchildren’s education, buy another home, or just to feel secure in their golden years.

10. The older I am, the more money I can get from a reverse mortgage. True. A senior that is 80 may receive more money than a 62 year old senior. The loan amount is based off of age, home value, and life expectancy.

Information: Questions from Family

1. Will Mom and Dad use up my inheritance? While tapping into their equity, your parents’ home may be appreciating in value, which could allow for some equity left at the end of the loan. They are also able to live comfortably without having to depend upon family members to support them.

2. Will the bank take their home? No, the bank will not take their home. Throughout the life of the reverse mortgage, your parents will continue to own their home and retain title.

3. How much money will they owe when the loan has to be repaid? Your parents will owe the total amount borrowed, accrued mortgage insurance premiums, accumulated interest, servicing fees, and any other costs and fees financed through the loan amount.

4. When do my parents repay the loan? There are three viable options for your parents. They can sell their home to repay the lender and collect the proceeds, choose to reimburse the lender directly from a personal account, or refinance the loan.

5. What happens to the equity if my parents or I decide to repay the loan by selling the house? There are two options. Either your parents or the heirs can keep the home and pay the balance due on the reverse mortgage, or they can decide to sell the home and use the proceeds to pay off the reverse mortgage. Either way, the remaining equity is retained by the owners or heirs.

Receive Reverse Mortgage Quote

We specialize in Reverse Mortgages for seniors. A reverse mortgage enables senior homeowners to sustain their retirement while living in the home and community they love. Contact us for reverse mortgage information and our no obligation reverse mortgage informational package.

If you or a family member would like an informational package or an appointment with one of our local specialists please call (888) 801-2762 Ext 1 or complete out online questionnaire