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Mortgage Finance

Myths, Pros and Cons of Hecm Reverse Mortgages

Myths, Pros and Cons of Hecm Reverse Mortgages

First and foremost; the bank does not, nor do they want to own your home. So why do so many people believe this? Prior to FHA getting involved in 1988, the lenders would take an equity position in their Borrowers homes.  That practice has resulted in unfavorable feelings towards today’s reverse mortgages. The Federal Housing Administration (FHA) has set the new standards and guidelines for HECM reverse mortgage loans and their involvement has produced a safe, well thought out and balanced loan for Seniors. Look below to find some of the pros and cons of reverse mortgages.


The Upsides

There are no monthly payments associated with a reverse mortgage. You will never be required to make a monthly payment while you reside in your home.
You stay on title and any equity remaining in the property is yours. The lender does not take title to your home!
You can never owe more money than your home is worth. HECM reverse mortgages are “nonrecourse” loans. This means that no matter how long you stay in your home, you will never be obligated to the lender to pay them any more than the value of the property, even if the loan exceeds the value.
A reverse mortgage will not effect Social Security or Medicare benefits.
Qualifying is easy. You must be at least 62 years of age and have value in you home. You do not not have to prove income or have good credit. The value of your home and your age determine loan amounts. It’s that simple.
The money you receive from your reverse mortgage is tax free.
The funds you receive can now be designed for your specific needs. Depending on the amount of funds you require, you can create your loan with a fixed or variable rate. You can also design your loan to provide one upfront payment of all cash, you can receive monthly payments or keep all of the funds due you in a line of credit and withdraw the funds as you need them. You can also create a combination of all three methods.
The funds from a reverse mortgage may be used anyway you want. After paying off any existing mortgages, tax liens or heath and/or safety issues regarding your home, you can use the funds for any purpose you desire. Take a vacation, you deserve it. Make repairs or upgrades to your home. Put all the cash on 7 and spin the wheel, the funds are yours.
You built the equity in your home over years of hard work, now you can let this equity work for you. You can feel the self reward and know that you are not necessarily reliant on your children or other family members to help you. There seems to be a since of pride that goes along with method.
FHA insures these loans. Given the state of this economy, you do not want to find out that the bank funding your monthly payments has gone out of business. With FHA insuring your loan proceeds, you can be comfortable knowing that your next payment will be guaranteed by the US government.
NRMLA. Lender/members of the National Reverse Mortgage Lenders Association are an elite group of individuals who are dedicated to helping American Seniors fulfill their retirement dreams. This group is available for you.  

The Downsides 

Lenders generally  charge their origination fees, FHA upfront mortgage insurance (MIP) and other closing costs that add up in a hurry. The flip-side to this, however, is that if you really need the funds from the equity in your home you could borrow the funds traditionally as long as you can afford the monthly payments or sell the property. If you sell the property, you are left without a home to live in and the 5-6% cost to sell your home is considerably higher than those fees assessed with a reverse mortgage. The longer you live in the property the lower the costs average out.
Most reverse mortgages require utilizing a variable rate. This can be overcome by using a fixed rate. Unfortunately, the fixed rate reverse mortgage requires that you draw all funds available to you and may not be the right loan for all applicants.
Your mortgage debt rises fairly quickly, but, there is no surprise that the loan increases rapidly since you do not make any payments while living in the property. The interest that would be due as in a traditional loan simply adds on and creates a new higher principle value.
Borrowers are of course responsible to keep the property properly maintained and they must stay current with their homeowners insurance and property tax.

 
All in all I believe the upside to reverse loans far outweighs the downsides. Call on a NRMLA member and do your homework. Vist us online: www.mlsreversemortgage.com

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Mike Borba (President of MLS Reverse Mortgage) is a broker that has been in the mortgage and real estate field since 1980. Toll Free (888) 888-4834. Visit our website. Read more of our articles online. Reverse Mortgage FAQ’s

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Mortgage Finance

Understanding Reverse Mortgages

Understanding Reverse Mortgages

Seniors today often live with a great deal of financial uncertainty. The retirement they imagined may not be consistent with the reality they face.

Incomes are flat or declining, living and medical expenses are higher than ever and few income boosting alternatives exist.  Even those who have heard about Reverse Mortgages may be unsure about how they work or what questions to ask. As they search for information, they often turn to their financial institution for guidance and information. By becoming familiar with the product, you can be an even more valuable resource to your clients providing them with income supplementing alternatives to drawing down assets.  

 

What is a Reverse Mortgage?

 

A Reverse Mortgage is a special type of loan that allows a homeowner to convert a portion of the equity in their home into cash they can access. The funds are not taxable to the homeowner and typically don’t interfere with eligibility for Social Security or Medicare benefits. (However, in the federal Supplemental Security Income program, beneficiaries must keep their liquid resources under certain limits.) The customer retains title to the home as well as right to any appreciation in home value when the loan terminates after it is paid off. The loan remains in force until the last titleholder dies, permanently leaves the home or sells the property; the borrower can’t be forced to sell or move by the lender. The loan may be repaid at any time. But unlike a traditional home equity loan or second mortgage, no monthly payments are required. Instead of putting further pressure on an already stretched budget, a Reverse Mortgage can free a senior homeowner of monthly debt obligations.

 

Most Reverse Mortgages today are Home Equity Conversion Mortgages (HECMs) and are FHA-insured and guaranteed. Because HECMs are subject to FHA lending limits, proprietary products have also been developed to help homeowners with properties in excess of the FHA lending limits.  

 

Who qualifies for a Reverse Mortgage?

 

All titleholders must be 62 or older and own a home with some equity. There are no income or credit qualifications. Existing mortgages or liens must be paid off, but are often paid with proceeds from the Reverse. The homeowner must also remain current on insurance and property taxes, but these can also be paid with proceeds from the Reverse.

 

How can a borrower use the money?

 

The funds can be used for any purpose from making ends meet to living retirement dreams.  The top reasons for funds used given typically by borrowers are:

 

Paying off debts, primarily mortgage and credit cards

Home repairs and remodeling

Living expenses

Travel

Health care or long-term care

Easing the financial burden on children

Education

Hobbies

Escalating property taxes

 

The amount available depends on the borrower’s age, the value of the home, interest rates and local FHA lending limits. Older borrowers can receive a higher percentage of their equity than younger borrowers. Funds can be received in a lump sum, a monthly payment or a line of credit.

 

What are the costs?

 

As with most any loan product, there are origination fees and closing costs, but they can be paid from the proceeds of the Reverse Mortgage. HECM loans also have a charge for the FHA’s Mortgage Insurance Premium (MIP). There are usually no out-of-pocket costs to the borrower.

 

What consumer protections are in place?

 

Reverse Mortgages are non-recourse consumer loans – the loan payoff can never exceed the value of the home. To get a Reverse Mortgage, the customer must attend a mandatory counseling session and review their financial situation with a trained, professional Reverse Mortgage counselor. Many of the counselors are certified by the AARP. The counselor ensures that they understand the transaction, the costs and their other alternatives.

 

If you have questions regarding Reverse Mortgages or how they may provide life-changing benefits to your clients, contact MLS Reverse Mortgage at 1-888-888-4834 or www.mlsreversemortgage.com.

 

Fixed Rate Reverse Mortgage

 

MLS Reverse Mortgage

 

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Mike Borba (President of MLS Reverse Mortgage) is a broker that has been in the mortgage and real estate field since 1980. Toll Free (888) 888-4834. Visit our website. Read more of our articles online. Read frequently asked reverse mortgage questions.

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