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What is a Reverse Mortgage?
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 Pros and Cons
Many people are are not properly informed on how a reverse mortgage can benefit their lives. The Pros and Cons of a reverse mortgage are itemized below. The lists clarify several myths as well.
- Stay in your home. You do not have to move out of your home or relinquish your title once you have finalized on your reverse mortgage. You keep your home.
- The money is yours to do with as you please.
- Your credit score and current income are not considered when applying for a reverse mortgage. The amount of your reverse mortgage loan is determined by the current interest rate, value of your home and your age, which you must be at least 62 years of age or older.
- You will have no payments while you are in your home. The principle guideline for the reverse mortgage program is that you remain in your current home. As long as you stay in your current home, you do not have to make any payments.
- Your reverse mortgage is not taxable. You do not have to file any tax forms at the end of the year with a reverse mortgage.
- The fees of a reverse mortgage may be higher than a conventional mortgage. The cost of the FHA mortgage insurance and origination fees generate the higher costs for reverse mortgages.
- There is a cap on the amount of loan proceeds you can receive.
- The loan balance gets larger over time and the value of the estate/inheritance may decrease over time.
Reverse Mortgage Myths
All too frequently we tend to read or hear myths about reverse mortgages. When wrong information appears in the press, we also find that it is often repeated in future press articles. We attribute this to the fact that a reverse mortgage is a unique product that needs to be studied—and those who misinform often do not take the time to properly study or research it.
Reverse Mortgage Terms
Mortgage Insurance Premium (MIP)
Mortgage Insurance Premium, or MIP, is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. You can finance the mortgage insurance premium (MIP) as part of your loan.
We do not charge an origination fee. However, a HECM origination fee can cost up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 lenders can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
We do not sell products with a servicing fee. 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.
You can choose an adjustable interest rate or a fixed rate. If you choose an adjustable interest rate, you may choose to have the interest rate adjust monthly or annually. Annually adjusted HECMs cannot adjust by more than 2 percentage points per year and not by more than 5 total percentage points over the life of the loan. FHA does not require interest rate caps on monthly adjusted HECMs.
Third Party Charges
Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
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 the APR.
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.
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
Reverse Mortgage Professionals helped my husband and I get a fixed rate reverse mortgage. Our lives have changed. Great service.Sandy
YAYAYAYAYAYAY!!! Thanks again for all of your help. You truly are appreciated by myself and my parents think the world of you!Carla
I just wanted to let you know how pleased my parents are with your service, they really like you. Thanks for being so thorough and efficient, it is a relief for me that they are in the right hands!Kimberly
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