Most people think they are too young to plan for their retirement. But in reality, this is a process that should be started as early as possible. Here are a few things you need to follow if you want to make sure you have a comfortable life after your retirement:
The High Costs
Unlike regular mortgages,
Minimum age requirement of 62 years
The borrower of a reverse mortgage loan must be at least 62 years of age. In case you are living with your spouse, a partner or a sibling, you can include that person as a co-borrower, provider he/she is at least 62 years of age. The best part here is that your co-borrower can live in the home, in case you need to move out to a nursing home or an assisted living facility. He/she doesn’t have to worry about repaying the mortgage. Co-borrowers generally have the same rights when it comes to reverse mortgage.
Available only for primary residences
The criterion behind HECM is that you have to live in the house on which you take out a
Why refinance a reverse mortgage?
The first thing you need to understand is why a reverse mortgage may need to be refinanced. Unlike a conventional mortgage, here the goal is not to save money on the interest. Even if you do want to refinance a reverse mortgage when the rates are falling, you will not be able to offset the huge refinancing fee.
The term in case of reverse mortgage is not limited as in a conventional mortgage. It comes up for payment only when the borrower moves out of the house permanently or passes away. Such a period cannot be defined. Therefore it is not possible to shorten the term of the reverse mortgage by going for a refinance.
The main purpose behind refinancing reverse mortgages is to obtain more funds. This is possible only in the following scenarios:
- You have grown older: The older you get, the more amount you are entitled to borrow by way of a reverse mortgage. So if you obtained your original reverse mortgage when you were 62 and if you are 72 now, you can benefit by refinancing your reverse mortgage.
- Your home has appreciated in value: If the real estate market is at a healthy boom and if your home has gathered more equity that you can tap into, you can get more funds by refinancing your reverse mortgage.
- If FHA has revised its loan maximums: Although rare, this is also one scenario where you can expect to get more cash by refinancing your reverse mortgage.
When is it worthwhile to refinance a reverse mortgage?
It is worthwhile to refinance a reverse mortgage only if the excess amount you obtain totals upto two or four times the refinancing fees. For instance, if the origination fee of the new reverse mortgage is $10,000 and if the extra cash that you can get via refinancing your reverse mortgage is $45,000, it could be worthwhile to refinance your reverse mortgage. Ideally your new reverse mortgage must pass the “5 times benefit rule” for your refinancing to be really worthwhile.
Another scenario where refinancing a reverse mortgage could be worthwhile is when you want to add your younger spouse as a co-borrower, who may have just turned 62. By doing so you may ensure that your spouse will not be forced to sell your home after your death. Similarly, you can take out a new reverse mortgage even if you want to remove a borrower.
The current HECM limit is $636,150. In case the lending limit was less than this when you obtained your original reverse mortgage, it makes sense to refinance the same now.
If you want to switch over from a private reverse mortgage to HECM (Home Equity Conversion Mortgage) program that offers more benefits and better protection, it would be worthwhile to refinance your reverse mortgage.
When not to refinance your reverse mortgage?
Refinancing may not be economical if there is only a slight appreciation in your home value in the interim.
In case you want to change the way in which your funds are distributed (monthly payment to line of credit), refinancing may not be the right option. Instead, you can ask your existing lender to change this for you by paying up a modest fee.
Refinancing your reverse mortgage – the process
The first thing you need to know in order to refinance your reverse mortgage is to submit an application for a new reverse mortgage. This may be followed by a counseling session with a reverse mortgage counselor who has been approved by the FHA. Nevertheless, this session may not be mandatory if the new funds that you receive happen to exceed the value of the new origination fees by five times.
Your home will have to be appraised so that its current value might be determined. Based on this, the necessary changes will be made to your loan terms and your new reverse mortgage would be underwritten. Your current loan would be closed and new funds would be disbursed to you according to the disbursement option you have selected.
Yes, reverse mortgage refinancing might work to your benefit in many cases. However, do identify what you are going to do with the additional funds before you say “Yes” to the new reverse mortgage lender who may have come to you directly by purchasing
reverse mortgage leads.
Reverse mortgage loans can give the freedom to elderly homeowners, to live life, the way they want. They can leverage their home equity and borrow funds, as a lump sum, line-of-credit, or monthly payments, while enjoying the right to own and occupy their homes.
There are many smart ways to put reverse mortgage loans to use. Nevertheless, an option that might seem smart for someone may or may not be good for you. It all depends on your financial situation.
Here are a few things that will tell you how exactly you should use a reverse mortgage:
To pay off your
debts and large expenses
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Reverse mortgages may not help in all situations. It is best to consider your other alternatives too. For instance, in case you want to make any home improvements or repairs or if you are looking for some funds to pay your property taxes, it is better to check if there are any low-cost single-purpose loans you can qualify for. You can ask AAA or Area Agencies on Aging who will have information about such programs. You will have to specifically ask for information about the availability of “loan programs for home repairs or improvements,” “property tax postponement programs,” or “property tax deferral programs.”
Federally insured HECM is also an option to go or. In this case it would be better to be aware of the various HUD rules that the HECM lenders need to follow. Although the loan costs and the interest rates are standard, certain costs such as origination fee, servicing fee and other closing costs may vary from one lender to the other. So, it does benefit to do some shopping around.
If your home has a high value, proprietary
There is a primary advantage in buying a home through a reverse mortgage purchase program when compared to a conventional mortgage – You don’t have to make any monthly mortgage payments. You pay up the cost of the home in a lump sum and enjoy staying there. Nevertheless, there are a few things you need to know here:
- Reverse mortgages can be taken by home owners who are above 62 years of age. However, you can make the most out of the new non-borrowing spouse rules for the FHA Insured HECM Reverse mortgage if you have a younger spouse.
- If you purchase a home by taking out a reverse mortgage purchase loan, you may have to make a higher down payment, which might be about 40 to 50% of the home value or $625,500, whichever is lesser. This is basically because you are not required to make any monthly mortgage payments. This will make sure your home has equity right from the beginning, which will later be used up, to pay back the loan after you leave your home permanently. The amount that you contribute has a lot to do with your age. So the older you are, the lesser contribution you get to make.
- The income qualification in this case is much lower than the conventional mortgages. However, you need to have a good payment history for your debt expenses and past housing.
- By taking out a reverse mortgage purchase loan, you can be eligible to buy only the following properties:
- single family residences
- Condos and town homes that have been approved by HUD
- New constructions that have got certificate of occupancy
The down payment that you make will have to come from one of these sources:
- Sale of an existing home or an asset
- Gift from family members
- Cash from your savings or investments
You have to pay up the closing costs without availing any seller concessions.
In case there are any repairs upon appraisal or inspection, the seller will have to complete all the repairs before the closing.
The new financial assessment rules have for sure lengthened the amount of time taken to close HECM purchase loans. However, if your purchase agreement has been drafted accurately and if you have a good real estate agent, you can get the transaction closed within a very short span of time.
Many lenders who offer reverse mortgage purchase loans may start contacting you directly. They get your details from professional lead generating firms that sell
reverse mortgage leads
#The First Myth: Taking out Reverse Mortgage Means Transferring the Ownership of the House to the Lender
This is absolutely false. You very much own the house throughout the period of the loan. You have every right to decide when you wish to sell your home. However, you will have to be regular in paying up the utility bills, homeowners insurance and property taxes, to make sure the loan doesn’t become due for payment.
#The Second Myth: The Onus of Repayment of the Loan will come upon my Children
Reverse Mortgages are nothing like non-recourse loans. They become payable only when the homeowner passes away and if the heirs decide to sell the home in order to pay off the loan. If the value of the home is less than the loan amount, the balance amount is automatically waived off. In case the heirs wish to keep the home, they can do so by paying up the balance in full.
#The Third Myth: I am not eligible to take out a reverse mortgage if I already have a Mortgage on my home
If you have enough equity on your home that covers your existing mortgage and the reverse mortgage, you can definitely take out a reverse mortgage. In fact you can even use the reverse mortgage loan amount to pay back your existing mortgage. This is one of the reasons many senior homeowners go for this option.
#The Fourth Myth: I need to be a low-income senior in order to take out a reverse mortgage
Your income level has nothing to do with taking out a reverse mortgage. There are only two conditions here – (1) you need to own a home and (2) you need to be above 62 years of age. However, it is up to you whether you want to receive the reverse mortgage amount as a lump sum or as monthly payments. Otherwise, you are free to do anything that you want with the proceeds that you receive.
#The Fifth Myth: I might get evicted from my house if I outlive my life expectancy
This is totally untrue. There is no time limit on how long you can stay in your home once you take out a reverse mortgage. As long as you follow all the program guidelines, the lender has no right to evict you. The home will be very much in your name.
#The Sixth Myth: Reverse Mortgage lender will try to take advantage of my situation
This is highly unlikely unless you do not choose your lender well. Always go for a lender who is a member of BBB (Better Business Bureau) of NRMLA (National Reverse Mortgage Lenders Association). They stick to certain ethics and standards that you can trust with closed eyes.
Many reverse mortgage lenders may try to get in touch with you directly. If they do, do not hesitate to speak to them. They would have got your details by purchasing top-quality reverse mortgage leads,
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Reverse mortgage or the traditional mortgage?
If you (as long as you are over the age of 62) are in need of funds you have two home loan options. One option is a traditional mortgage, where you withdraw a portion of your home equity that you need to repay. The other option is a reverse mortgage, where you withdraw a part of the home equity without having to repay. While both options are feasible, a reverse mortgage ensures that you need not have to worry about repayment.
How will the reverse mortgage be repaid?
According to the terms of this type of home loan, the borrower and his/ her partner (i.e. you and your spouse) makes no monthly payments. Instead, the home is sold upon the passing of both the borrower and his/ her spouse, or after they choose to vacate the premises. Options for the inheritors of the home to repay the loan amount, plus interest, are also available.
Are there differences between a home equity loan and a reverse mortgage?
Yes, there are. The primary difference between these two home loan options is the fact that a reverse mortgage needs no repayment. Any mortgage fees and the monthly interest are added to your existing loan balance. However, your overall loan amount never exceeds the value of your home. In addition, you are also not personally liable for the reverse mortgage, unlike the traditional mortgage.
Are you eligible for a reverse mortgage?
The eligibility for reverse mortgages is not as strict as one would expect. A primary criterion for availing the loan is that you must be above 62 years of age. In addition, you need to own your home (which meets FHA standards) or have a low mortgage balance and live in it. It does not matter whether your home was bought with an FHA mortgage insurance or not.
How much money can I borrow?
The amount you can get from a reverse mortgage varies. It depends on three main things – one, your age; two, the current rate of interest; and three, the lesser of appraised value of your home, the FHA’s HECM mortgage limit or the sales price. If your spouse is also eligible for the loan, the age of the younger borrower is considered.
The idea of reverse mortgages is becoming increasingly popular. Many loan officers offer services to help senior citizens avail these home loans. In fact, many companies, like the Heritus Marketing Group, sell mortgage leads transfers and
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