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Reverse Mortgages Provide Security, Independence, Dignity And Control

March 28, 2014
Reverse Mortgage Help Their Lifestyle

A Reverse Mortgage Helps Their Lifestyle

When Andrew and Harriet, both in their 70’s, went to their bank to inquire about refinancing their current loan, their banker suggested a reverse mortgage and referred them to us at Reverse Mortgages SIDAC.  They needed some additional funds for home repairs including a new energy efficient furnace.  Anticipating future medical expenses, they liked the idea that with the reverse mortgage they could get money for their immediate needs, eliminate their mortgage payment, and still have funds for their future needs by having a line of credit.

They decided to do a reverse mortgage with the understanding that they would still own their home (as they do with their current mortgage), payments aren’t required, and generally the interest rate is lower than they could qualify for on a regular loan.  They understand they continue to be responsible for their taxes, homeowners insurance, and maintenance of the property and don’t have to repay the loan until the home is no longer their primary residence.  They liked the idea that even if one of them goes into the nursing home, the other one can stay in the home.  Additionally, it was appealing that the funds are tax-free*, Social Security and Medicare are not affected and Medical Assistance and other public benefits can still be received.

A mortgage with special terms for homeowners 62 and older, a reverse mortgage has no income or credit score qualifications and a low interest rate (averaged around 6% over the last 15 years), which offers many advantages for senior homeowners.  Allowing access to cash from the equity of the home to use now and pay back when the home is no longer the primary residence of borrower(s), when the home is sold any remaining equity goes to the borrower or their heirs.  With the reverse mortgage, if the loan balance is higher than the home can be sold for there is no personal liability to borrowers or their heirs.

“When a friend told me she was doing a reverse mortgage I thought, that sounds really good.  I thought, if I do a reverse mortgage, I could do some things to my home, and maybe take a vacation.  After everything was explained to me and my children in detail and in words I could understand I did a reverse mortgage.  I now am getting new windows and siding and am going on vacation with my daughter,” said Judy in St. Paul.

Happy to Repay Son-In-Law from Reverse Mortgage

Happy to Repay Son-In-Law from Reverse Mortgage

A few years ago Patricia had borrowed money from her son-in-law, Brad, to pay off a loan.  Then Brad needed the money back for his own purposes.  After consulting her family and an attorney, she did the reverse mortgage.  She told us she was greatly relieved and the pressure was off her now that she no longer owed Brad money and wasn’t dependent on him.  She added as a result of consulting the attorney, “Other good benefits are that I tended to my will being made, my health directives done, and a trust fund set up.  All that is done now and I’m prepared for the future.”

The factors used to determine how much is loaned to borrowers include the home value or FHA lending limit ($625,500 through the end of 2014), the age of the borrower (the older one is the more funds they can receive), and an Expected Interest Rate.  If one doesn’t have a mortgage on their home they benefit from having more funds available to them. Cash flow will improve when the current mortgage payment is eliminated if one does have a current mortgage on their home.

No matter what the home values may be and no matter if one is only 62, it is still a good time to do a reverse mortgage because the interest rates are so low and one can benefit from the Line of Credit growth rate.  When one waits for the home values to be higher or one waits until they are older, there may be more reverse mortgage funds available.  However, if one waits to do the reverse mortgage, the interest may be higher and consequently less funds available.

As with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees.  With the FHA insured, Home Equity Conversion Mortgage (HECM) borrowers pay a mortgage insurance premium.  The fees are often perceived as high but they actually compare to a conventional mortgage with the difference being the FHA Mortgage Insurance Premium.  However, in the big picture the reverse mortgage costs less because of the much lower interest rates.  The only out of pocket expense is the cost of the appraisal.

“It was a blessing when we heard of reverse mortgages.  We were behind in the property taxes and mortgage payments and faced foreclosure.  We were really in a mess.  The reverse mortgage cleared it all up and has lifted a weight from us that we can live in the house and not worry,” said Gwen and Robert.

A reverse mortgage has allowed thousands of Minnesota seniors to remain in their home with security, independence, dignity and control even during trying times.  And if you know a senior who wants to sit back and relax with security, independence, dignity, and control, a reverse mortgage may be their answer.

*consult tax advisor who is familiar with reverse mortgages

Originally posted in 2009, updated in 2014
© 2009-2014 Beth Paterson https://bethsreversemortgageblog.wordpress.com 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/xPEm

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What To Consider When Choosing Your Reverse Mortgage Originator

March 25, 2014

When you have decided to explore or to proceed with a #ReverseMortgage you want to make sure you are working with an #originator you are comfortable and has the knowledge and experience to guide you through the process. There is a difference in originators with their expertise, knowledge and experience with reverse mortgages along with the customer service they provide. To help ensure that you are working with an originator who is experienced, knowledgeable and meets the industry’s standards, consider the following when choosing your reverse mortgage originator. http://wp.me/pxPEm-AJ

Beth's Reverse Mortgage Blog

Reverse Mortgage Originator Explaining Documents to a MN Borrower When you have decided to explore or to proceed with a reverse mortgage you want to make sure you are working with an originator you are comfortable and has the knowledge and experience to guide you through the process.  Originating the reverse mortgage takes patience, kindness, a “social worker” attitude and a teacher aptitude versus a sales approach.  There is a difference in originators with their expertise, knowledge and experience with reverse mortgages along with the customer service they provide.

To help ensure that you are working with an originator (also referred to as Loan Officer/Reverse Mortgage Specialist, Reverse Mortgage Advisor or Reverse Mortgage Consultant) who is experienced, knowledgeable and meets the industry’s standards, consider the following when choosing your reverse mortgage originator.  Yes, the list is long but knowing the answers to this list of questions will help support and protect you.

  • How much experience does the Reverse Mortgage…

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A Reverse Mortgage Should Be A Last Resort… To What?

March 24, 2014

While the financial planning industry has changed their attitude about considering a reverse mortgage as a last resort, many still think it is… but a last resort to what?

Beth's Reverse Mortgage Blog

A Reverse Mortgage Should Not Be A Last Resort So called senior advocates often state a reverse mortgage should be a last resort.  My question is to what?

A Home Equity Loan?  To qualify for a home equity loan or a traditional loan a lender looks at a borrowers’ credit, income, assets, and ability to make payments.  Most seniors don’t qualify for a home equity loan.

Even if a senior does qualify now, if “life happens” and they have to juggle making a mortgage payment or having funds for other expenses, their stress level increases.  And if they don’t make their mortgage payments they could be facing foreclosure.

I receive calls on a regular basis from seniors who did a home equity loan or traditional loan just a few years ago and now they can’t afford the payments.  When I run the calculations more times than not I find there are not enough proceeds from the reverse mortgage…

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Reverse Mortgages Give Reasons For Hope

March 20, 2014

Happy Spring! Reflecting on the #hope that Spring brings got me thinking about the reasons the #ReverseMortgage gives hope.

Beth's Reverse Mortgage Blog

Reverse Mortgages Provide Hope As I was reflecting on the hope that this season brings I got to thinking about the reasons the reverse mortgage gives hope to seniors.  Here are some of the reasons for hope with a reverse mortgage.  Yes, the list is long but seniors have a long list of wants and needs for hope.  With a reverse mortgage one will be able to:
  • Stay in one’s home where they may have raised their family, are familiar with the neighborhood and their neighbors and where they usually want to remain.
  • Pay off a current mortgage to eliminate the monthly mortgage payments.
  • Save one’s home when faced with foreclosure or tax forfeiture.
  • Have improved cash flow with no monthly mortgage payments.
  •  Have funds for making home improvements or home modifications.
  •  Retire and not feeling like you have to work just to have money to pay the bills.
  •  Have cash flow to be…

View original post 503 more words

Reverse Mortgages Finance Home Care

March 13, 2014

Beth's Reverse Mortgage Blog

Reverse Mortgage paid for grandma's home care Reverse Mortgage pays for grandma’s home care

“Once we realized that we could only relieve the stress on us by contracting 24-hour [at home] nursing care for grandma, a reverse mortgage was the only way to do it.”  Liz wrote me.  Another borrower, Robert, did not want to go to a nursing home, yet he needed long term care.  George, Robert’s son, decided they should do a Reverse Mortgage to pay for the home health care needed to keep Robert at home where he had raised his children.  Robert is happy because he is living where he chooses.  George is happy the family can fulfill Robert’s wishes of staying in his home and still receive the needed care.

Last week I talked with a daughter who said that moving her dad to a nursing home would “kill him,” causing him to die faster than if he stayed in his home. …

View original post 671 more words

Think you don’t need a reverse mortgage? Think again… Maybe you’ll WANT one.

February 23, 2014

Benefit from Reverse Mortgage for Financial and Long Term Care PlanningI sometimes have people say to me they don’t need a reverse mortgage.  Have you said or thought this?  Have you thought  a reverse mortgage should be a last resort or one should wait until they are older before doing one?   Let’s explore how a reverse mortgage can help you with your retirement planning and long term care planning needs.   And why doing a reverse mortgage now rather than later may be to your advantage.  You might then decide you want one.

A reverse mortgage is a mortgage like any other mortgage, using the equity in one’s home, but has special terms for homeowners 62 and over.  There are no income or credit score qualifications for the interest rate and no monthly mortgage payments required.  Homeowners maintain the title; the reverse mortgage lender does not own the home.  Borrowers are responsible for paying their property taxes and insurance as well as maintaining the home.  Reverse mortgage borrowers are highly protected – more so than with any other loan.

The Loan Amount, referred to as the Principal Limit, of the HUD insured Home Equity Conversion Mortgage (HECM) reverse mortgage is based on the age of the youngest borrower, the lesser of the home value or FHA Lending Limit, the program chosen and the Expected Interest Rate.  HUD allows certain types of properties to qualify: single family homes, duplexes or 1 to 4 unit properties as long as the home owner is living in one of the units, townhomes, FHA approved condos, and manufactured homes that meet HUD’s requirements.

Let’s compare doing a reverse mortgage now to waiting before doing your reverse mortgage.

TODAY

10 Years from Now

 

Barb wrote: “Having a Reverse Mortgage has given me monetary independence and I never realized how important having cash available would be until I fell in October 2013 and broke my right shoulder. Without the Reverse Mortgage money I would have been ‘up a creek without a paddle’.  Financial independence
saved the day.”

AGE

63

73

HOME VALUE

$200,000

$263,000
(based on Moody’s
Analytics Factors)

AVAILABLE (Approximate net after fees)

$92,729

$130,626*

  • Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%.
  • The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan.
  • Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%.  Actual Line of Credit Grows based on current interest rate plus 1.25%.  So if interest rate is higher, funds in the line of credit will grow faster.
  • These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

* If the interest rate is higher, and it is likely that it will be in the future, less funds would be available.

While it may look like it’s to your advantage to wait until you are older, look at what happens if you do the revolving credit reverse mortgage now and leave the funds in a line of credit for your future use.

Funds in the reverse mortgage Line of Credit grow and this is the advantage of doing the reverse mortgage now.  Here’s an example of future funds available if at the age of 63 you draw less than 60% in the 1st 12 months and you have $92,729 in your line of credit initially:

Line of Credit Available*

No Draws

After Draw of $5,600 Each Year

 

Jerry stated, “The Reverse Mortgage enables us to live in our home without mortgage payments.  Line of credit will grow for our future needs.  The whole package is a win-win for my wife and me.”

 Age 68

$136,488

$92,557

 Age 73

$188,364

$101,624

Age 83

$358,756

$134,739

  • Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%.
  • The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan.
  • Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%.  Actual Line of Credit Grows based on current interest rate plus 1.25%.  So if interest rate is higher, funds in the line of credit will grow faster.
  • These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

Consider the amount you will have in the line of credit available for your retirement needs or long term care needs when doing the reverse mortgage now.

You can pull all or some of the line of credit funds out as you desire or the payment plan can be changed during the life of the loan, for example, you may change from having some or all of your funds in the line of credit to receiving monthly payments.(1)

Even when you use some of the funds each year you will be taking advantage of having the additional money you need annually plus still having funds in your line of credit for future use.

The Principal Limit or Loan Amount is based on age with the older one is receiving more funds.  At the current Principal Limit Factors the increase is approximately 1% for each year.  This is lower than the line of credit growth rate.  With this taken into consideration, in just 5 years the funds in the line of credit with no draws will likely be higher than if you wait the 5 or 10 years to do a reverse mortgage.

Lucy* stated, “Having done the reverse mortgage has given me a new sense of security.”

Have No Monthly Mortgage Payments, Lower Interest Expense, Funds for Needs or Wants for Retirement Planning or Long Term Care Planning or Needs

In addition to a lower interest rate(2) with a reverse mortgage, eliminating your monthly payment will improve your cash flow because you don’t have to pay out that monthly payment each month.  While the loan balance will rise because you are not making payments, the reverse mortgage is non-recourse which means there is no personal liability to you or your estate if the loan balance is higher than what the home can be sold at fair market value in the future.  When the loan is being repaid, if the loan balance is lower than what the home can be sold for, the borrower or the estate receive the difference.

You have the funds to use during the term of the loan for whatever you need or want.  By doing the reverse mortgage earlier you have use of funds that otherwise would go toward your monthly mortgage payments.  Why not improve your cash flow sooner than later?

You do have the option of making payments with your reverse mortgage – it’s just not required.  You can choose when, how often and how much you want to pay.

If you make the payment(s) on the reverse mortgage, the payments will reduce the loan balance.  And with the adjustable rate, open-end reverse mortgage the payment will increase the Line of Credit meaning the funds are available in the future.  And over time the funds available are likely to exceed the home value at the time the reverse mortgage was initiated.  Additionally, using Moody’s Analytics, the line of credit is likely to grow faster than the home is appreciating.

Consider if you do the reverse mortgage now, let the line of credit grow and in 8 years you have a medical situation.  If you have a conventional mortgage you’ll have to balance paying mortgage payments with paying medical bills.  With the conventional mortgage if you don’t pay your mortgage in a few short months you are likely to be facing foreclosure.

If you are choosing to make monthly mortgage payments on the reverse mortgage, you could stop the payment being they are not required and therefore eliminating the risk of foreclosure from not making the monthly mortgage payments.  You have the option of resuming making payments if you choose.  You still need to pay your property taxes, keep hazard insurance on your home and pay home owner association dues if applicable.

Take advantage of doing the reverse mortgage now while the interest rate is low.  And then when the interest rate does increase, the line of credit will grow even faster (the growth rate is determined by the interest on the loan plus 1.25%).  The line of credit will grow regardless of the home values increasing or decreasing.

In waiting to do a reverse mortgage until you feel you have a need, you are taking risks.  For example:

Reduced Loan Amount or Principal Limit

Over the last few years HUD has reduced the calculation of the Loan Amount (Principal Limit).  We don’t know if HUD may find it necessary to decrease this again and/or increase the FHA Mortgage Insurance Premiums.  Waiting may mean less funds are available if HUD reduces the Loan Amount or Principal Limit.

Higher Expected Interest Rates Equals Less Funds Available

With FHA Reverse Mortgages the Expected Interest Rate is calculated weekly and is used to determine initial funds available.  The Expected Interest Rate is considered a long term projection of future interest rates.  As the Expected Interest Rate changes to a higher rate, in the future less initial funds could be available to borrowers.  It is unknown as to the timing of when the rates may rise but at some point they will likely go up.

Properties that qualify

HUD already has restrictions on condos that are not FHA approved making it difficult to do a reverse mortgage on condos.  (The spot condo approval was removed in 2010.)  We are seeing lenders add manufactured homes, log homes, berm, and rural homes to their list of ineligible homes.  While there are still some lenders who continue to lend on these properties, this may change in the future and they are likely to tighten the underwriting requirements for these types of properties.  If you are in one of these properties you should look at doing a reverse mortgage now while it’s still an option.

Higher Valued Home Owners Should Do A Reverse Mortgage Before The Lending Limit Is Reduced

Currently the FHA HECM (Home Equity Conversion Mortgage) Lending Limit is $625,500.  At some point this rate could be reduced to a lower national limit or be based on a lending limit in the county where one lives (as is currently with a Forward FHA).  What this means is that if your home is valued more than the Lending Limit amount you can receive is based on the Lending Limit rather than the home value.  For example if your home is appraised at $700,000, currently we would use $625,500 to determine the reverse mortgage Principal Limit.  A lower Lending Limit would make a big difference on the amount one can receive.  If you have a higher valued home look at doing your reverse mortgage now instead of waiting.

Reverse Mortgage Financing Retirement

What would it be like for you to have security knowing you readily have funds available in your Line of Credit during your retirement years and the benefit of improved financial health?

You may not need a reverse mortgage now but it may benefit your retirement and long term care planning if you do one now.


(1)Consult with an Elder Law Attorney or financial consultant regarding the impact of pulling all your funds from a line of credit will impact Medicaid.
(2)Historically the HECM open-end credit reverse mortgage interest rate has been lower than what one can generally qualify for with a conventional mortgage.

Some information used in this article obtained from nu62(sm)

*Name changed to protect privacy

Topic first published 2009; Updated 2014
© 2009-2014 Beth Paterson https://bethsreversemortgageblog.wordpress.com 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/pxPEm-FD

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Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

February 12, 2014

Reverse Mortgage Closing Costs Compare to Conventional MortgageIt seems like every article, report or someone you talk with states the reverse mortgage  closing costs are high.  Have you looked at closing costs on a conventional home mortgage?

As with a conventional home mortgage (called a “forward” by HUD), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan.  Let’s compare the costs side-by-side for a Home Equity Conversion Mortgage  or HECM and a conventional/forward mortgage.

The third party and recording fees are standard for any loan.  Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for their services.  If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest.  Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees Reverse FHA Forward Forward FHA
Appraisal $500 $450 $500
Credit Report $22 $22* $22
Flood Certification $10 $10* $10
Courier Fee* $25 $25* $25
Escrow, Settlement, or Closing $275 $275 $275
Abstract or Title Search $100 $100 -$100
Title Exam $100 $100 $100
Document Preparation $125 $125* $125
Title Insurance $475 $392 $475
Endorsements $50 $50* $50
Recording Fees $92 $92* $92
County/Mortgage Registration Tax $323 $384 $384
Plat Drawing $60 $60 $60
Name Search $30 $30 $30
Special Assessment Search $30 $30 $30
Counseling Fee $125 N/A N/A
TOTAL THIRD PARTY FEES $2,342 $2,145 $2,278

* These fees are included in the Qualified Mortgage (QM) Rule; included in as part of the “Closing Costs” under Lender Fees.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  The FHA reverse mortgage includes a .5% or a  2.5% initial mortgage insurance premium, determined by the funds being drawn in the first twelve months.  The advantages with FHA insuring the reverse mortgage include:

  • Guaranteeing the funds are available for you during the term of the loan.
  • Guaranteeing the lender against default or shortfalls which means the interest rates are lower compared to other mortgages.
  • Providing a line of credit growth rate (available only with reverse mortgages).
  • Ensuring as, a reverse mortgage, it is a non-recourse (no personal liability) loan.

The origination fee is what the originating lender receives to cover the loan officer’s compensation, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000.  With a minimum of $2,500.

In some situations the lender will offer no or a reduced origination fee however the interest rate will be higher than if one pays the origination fee.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.  One is essentially borrowing the interest and mortgage insurance premium each month because they are not making a payment.  And as one draws from their line of credit or through monthly payments the loan balance will increase making the loan amount higher.

An estimate based on a $200,000 home value (based on loan amount at 80% for the Forward loans):

LENDER FEES REVERSE FHA FORWARD FORWARD FHA
Origination/Points $4,000 $4,800* $1,600
MIP $1,000** $0*** $2,800
Administration Fees $0 $900* $900
SUBTOTAL LENDER FEES $5,000 $4,800 $5,300
Prepaid Interest**** N/A $375 $375
TOTAL LENDER FEES $5,000 $5,175 $5,675

*QM Rule closing costs cannot exceed 3% of the loan amount.  Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate.
** Based on .5% – taking 60% or less within the 1st 12 months.
*** Conventional loans may have a Private Mortgage Insurance fee.
**** Forward loans have up-front prepaid interest due for remaining days in the month of closing; this is an example amount.  Funds will also be needed up-front to set up escrow.

TOTAL LOAN FEES REVERSE FHA FORWARD FORWARD FHA
$7,342 $6,996 $7,953

NOTE THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM!  Refer to above comments on the benefits of FHA insuring the reverse mortgage.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses other than the FHA appraisal.  (As of 2010 Appraisal Management Companies must be used to order and process the appraisal.  This fee is required to be paid for by borrower up front or “out of pocket.”)  All of the fees for reverse mortgages and forward mortgages must be disclosed on the Good Faith Estimate (GFE).

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now (if you even qualify), you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.

Whereas with the reverse mortgage you pay the closing costs up-front and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence.  The additional funds would be either through monthly payments, a line of credit if that is the type of loan you have chosen.

Consider the benefits of the reverse mortgage which include:

  • No monthly mortgage payments, therefore increase your cash flow.
  • A line of credit option which has a growth rate making more funds available to you in the future, no other mortgage offers this.  Or you can use the funds to receive monthly payments either as tenure (life of the loan) or an amount set by you.
  • Non-recourse, no personal liability to you or your heirs.

Now that we’ve compared the costs side-by-side, are you surprised that they are comparable to a conventional loan?

Comparison of fees first published 2009; Updated 2014
© 2009-2014 Beth Paterson https://bethsreversemortgageblog.wordpress.com 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/pxPEm-Fl

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