|LENDER||AVERAGE NOTE RATE||ESTIMATED PLF LOSS||EQUITY LOSS AT 10 YEARS|
|ALL REVERSE MORTGAGE, INC.||3.79%||$0.00||$0.00|
|LIBERTY HOME EQUITY SOLUTIONS||4.99%||$19,800||$19,480|
|NATIONWIDE EQUITIES CORPORATION||4.97%||$19,800||$19,137|
|AMERICAN ADVISORS GROUP (AAG)||4.95%||$19,800||$18,794|
|AMERICAN PACIFIC MORTGAGE||4.83%||$18,000||$16,748|
|FAIRWAY INDEPENDENT MORTGAGE||4.69%||$14,400||$14,392|
|LIVE WELL FINANCIAL INC.||4.69%||$14,400||$14,392|
|HIGH TECH LENDING INC.||4.60%||$14,400||$12,895|
|MID-CONTINENT FUNDING, INC.||4.56%||$14,400||$12,233|
|ADVISORS MORTGAGE GROUP LLC||4.55%||$14,400||$12,069|
|CHERRY CREEK MORTGAGE CO INC. (1st Reverse)||4.40%||$12,300||$9,611|
|ONE REVERSE MORTGAGE LLC||4.39%||$10,200||$9,446|
|V.I.P. MORTGAGE INC.||4.38%||$10,200||$8,146|
|OPEN MORTGAGE LLC||4.36%||$10,200||$8,946|
|FINANCE OF AMERICA REVERSE LLC||4.34%||$10,200||$8,643|
|RETIREMENT FUNDING SOLUTIONS, MUTUAL OF OMAHA||4.31%||$10,200||$8,146|
|BROKER SOLUTIONS INC. (NAF)||4.30%||$10,200||$8,946|
|M AND T BANK||4.11%||$8,400||$4,971|
|LONGBRIDGE FINANCIAL LLC||3.91%||$4,200||$1,846|
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What is a Reverse Mortgage?
A reverse mortgage is a loan secured by your home. It must be your primary residence (that means that you, as the borrower, must live in the home for as long as you have the loan).
This type of loan allows borrowers to access a portion of their equity — tax-free — without having to make monthly mortgage payments.
No payment is required until the last surviving homeowner moves, passes away, or sells the home.
The borrower maintains the title of the home and maintains responsible for property taxes and homeowner’s insurance payments.
The amount borrowers receive is determined by the HUD calculations based on the age of the borrowers (most specifically the age of the youngest borrower), the value of the home or the HUD lending limit, whichever is less and the interest rates in effect at the time.
Borrowers never have to make a monthly payment on reverse mortgage loans.
There is never a prepayment penalty so they can make any payment they wish, including repaying the loan at any time, without penalty.
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Since 1989, the Home Equity Conversion Mortgage (HECM) has been insured by the federal government through the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD).
Since its inception, the reverse mortgage program has helped thousands of homeowners just like you to safely access a portion of the equity in their homes to better enjoy their retirement years. The HECM is the most common reverse mortgage type.
What Are the Requirements?
All reverse mortgages carry some borrower requirements.
Here are the basics:
- At least one homeowner must be 62 years of age or older
- You must reside in the home as your primary residence
- Your home must be either a single-family home, two to four-unit owner-occupied home, townhouse, approved condominium unit, or certain manufactured homes
- You must attend an educational HUD-approved counseling session by phone or in person
- You must continue to pay property taxes and homeowners insurance
How Much Money Can You Receive?
Generally, you can expect to receive 40-60% of your home value depending on your age, program selection and current interest rates
The amount available is based on:
- Youngest borrower’s age
- Current interest rates
- 2020 HECM lending limit of $765,600, or up to $4,000,000 on jumbo loan programs.
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How Will I Receive My Loan Proceeds?
There are several ways borrowers can receive loan proceeds—a choice that may depend on the reason you’re getting a reverse mortgage or the strategy behind it. Here are the options and some considerations.
Payment Option: Line of Credit
The line of credit is the most popular choice among borrowers for receiving their reverse mortgage funds.
Here are some considerations:
- You can access funds only when needed to help pay your living expenses, if you so choose.
- If left untouched, the line of credit amount grows over time, which can be a way to maximize your borrowing potential.
- A line of credit can be extremely helpful for borrowers who don’t necessarily need the funds right away but want to have it as a back-up.
Payment Option: Term and Tenure Payments
A term payment gives borrowers fixed payments for a specified amount of time. A tenure payment allows for monthly payments for the life of the loan, even if the payments exceed the home value.
Here are some considerations:
- Some borrowers use term payments to delay claiming Social Security benefits. Because Social Security benefits increase the longer you wait to begin receiving them, this is a strategy some borrowers use to maximize their loan.
- For example: If you are 65 and want to defer collecting Social Security until you turn 70 (to increase your Social Security payments), you can establish term payments to augment your income over that 5-year period. The amount you will receive each month in payments is fixed regardless of whether your home value decreases or increases over the next five years.
- Under a tenure payment plan, the only way the payments will stop is if you pass away or leave your home permanently (you need to be sure you always pay taxes and insurance when due so that you are not in default of your loan).
- With both term and tenure payment options, you also have the choice to do a modified term/line of credit plan or a modified tenure/line of credit plan. In both cases, the plans allow you to establish a line of credit and receive fixed monthly payments for either a specified amount of time or for your lifetime in your home.
Payment Option: Lump Sum
A lump sum allows the borrower to take the loan proceeds all at once.
Here are some things to consider:
- A lump sum may be beneficial for you if you have a large payment to make, such as
- Home renovations
- Medical payments
- Paying off a large current mortgage in order to eliminate monthly mortgage payments
- If you choose a fixed rate to take out the initial lump sum, you do have the option regarding how much of your home equity you want to tap into, up to your maximum benefit amount.
- For example, a borrower can take out less funds than he or she is qualified to borrow. Say you need some renovations done on your home and you know it will cost around $30,000 but are eligible for an $80,000 loan. You may choose to take the lesser amount in this case.
- The fixed rate loan is a single-draw loan. If you use less than your total proceeds or choose to repay a portion of the loan, you can never draw again from the loan. The only way to access additional funds at that point would be to refinance the loan with a new loan.
How Does it Work for Home Purchase?
- Qualifications may be easier than traditional forward (or conventional) type financing.
- The qualification requirements for the typical purchase reverse mortgage loan is easier for senior borrowers due to underwriting standards. HECM for Purchase (H4P) loans do not utilize “income to debt ratios” for income qualification.
- The H4P offers an alternative to paying for the home in cash, while still being able to eliminate monthly mortgage payments.
- Much better for borrowers who might not qualify for traditional financing.
You purchase your new home using a portion or all the funds from the sale of your old home, private savings, gift money which are then combined with the reverse mortgage proceeds.
The reverse mortgage allows borrowers to maximize their buying potential for their new home, enables borrowers to purchase more home or homes that better fit their retirement needs, possibly relocate to be nearer family or services – all with a lower initial cash investment.
The reverse mortgage enables them to purchase their new home without having to pay for the home with a 100% cash investment but still have no monthly mortgage payment.
Reverse mortgage loans enable borrowers to utilize various financing strategies depending on their circumstances and needs. The one that is “right” is the one that is right for you.
For more information to help you determine which payment option might work best for your situation, contact us to learn more or visit the following resources:
What are the Current Rates?
- Adjustable rates from 3.45%
- Fixed Rate 3.68% (5.25% APR)
Rates as of 3/31/20 Learn all about interest rates and how they affect your available loan and future home equity position at our helpful interest rates page.
Counseling with a HUD-certified counselor is required of all borrowers. Here’s what you need to know:
- Depending on your location, counseling may take place by phone or in person.
- The role of the counseling agency is to review your unique financial considerations and explore any alternatives that may be available, such as downsizing, city or state grants, or other alternatives.
- Counselors are required to ask potential borrowers about income, assets, debts, and monthly living expenses to perform a budget analysis.
- Once you have completed this session you will be provided a counseling certificate which you will need to sign and deliver to us as part of your loan application.
- Some states have further “cooling off” requirements that will not allow lenders to proceed for specified time periods after counseling has been completed with the third party. Check with us to see if your state has this requirement before committing to time constraints.
As a lender we must give you a list of no less than 10 counseling agencies to choose from, five of which are mandated by the FHA and include the National Council on Aging.
Only after we receive your application and signed counseling certificate can we begin the processing of your loan (and any other waiting periods as mandated by state laws).
To find a HUD approved counseling agency near you, please visit our counseling locator page.
How is the Loan Repaid?
Reverse Mortgages require no monthly payments for as long as the borrower(s) lives in the home.
The loan becomes due and payable when the last borrower on the original loan permanently leaves the property whether because of death, they have permanently moved to an assisted living facility, to live with family for care or when the borrower sells the home.
At that time, the loan becomes due and payable and the loan must be repaid.
There are several things that borrowers and heirs of reverse mortgage borrowers should do in anticipation of needing to finalize or payoff a reverse mortgage.
We recommend you take these following steps:
- Procure title in the names of the heirs. This can include adding the names of heirs even before borrowers pass as your reverse mortgage allows you to add additional persons to title if at least one original borrower remains on title. There may be a probate required after borrowers pass so we recommend you seek professional counsel from an estate attorney in advance to determine the best method for your circumstances and state laws.
- Contact a local real estate professional to determine the most probable selling price of the home.
- Compare the value or most probable selling price to the outstanding balance of the loan.
- Decide if you want to refinance the loan or pay it off with other funds available to you or sell the property Once you have all your information available. If there is equity in the home based on the value and most probable selling price you would just pay off the balance of the loan but remember, heirs also have the option to pay 95% of the home’s current value if the balance exceeds the value if you still want to keep the home.
The loan is a non-recourse loan. If your heirs do not want to keep the property or sell it, they can simply let the lender take the property back and the lender’s only recourse is the property itself.
The lender cannot look to any other assets to repay the obligation so your heirs will owe nothing, even if the loan balance is higher than the property value.
Is a Reverse Mortgage Right for You?
Reverse Mortgage loans are not right for everyone. It may surprise you to hear a lender say this, but it is true. If you are looking for a short-term loan you may be better suited for a different type of financing.
A reverse mortgage loan can sometimes require closing costs which would make it impractical as a short-term solution in some cases.
However, for those who wish to remain in their homes and need extra cash flow to do so, the Home Equity Conversion Mortgage may be exactly what you are looking for.
Educate yourself or family on the safeguards with our advantages & disadvantages guide.
We explain what it is, how it works, and provide answers to many frequently asked questions and common misconceptions.
You can also find current articles and thousands of questions from other borrowers and family members at our blog, personal advice and industry updates which may answer any questions you still have or give you an opportunity to ask.
Our writer and CEO Michael G. Branson has over 40 years banking experience, has been instrumental in educating some of the largest banks on the nuances of this program and its benefits to older homeowners.