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Reverse Mortgage (HECM) Loan Information
What Is A Reverse Mortgage?
A reverse mortgage allows you to borrow against your home equity without making monthly payments for
as long as you live in your home. You must be atleast 62 and pay off any mortgage loan balance with the
reverse mortgage. You should consult a tax advisor to confirm, but in most cases a reverse mortgage gives
you access to tax-free funds. Instead of making payments, you can choose to receive them. That’s the
“reverse” part of a reverse mortgage. It is also know as a Home Equity Conversion Mortgage or HECM.
Unlike a tradition mortgage, your balance can never exceed the value of your home when you sell it.
What Are The Eligibility Requirements?
• Borrowers, must be at least 62 years old and occupy the property as your principal residence. If you have a low remaining
mortgage balance, it must be paid off to obtain a reverse mortgage, but this amount can be financed by taking a cash draw at
closing and paying off your present lender.
• Eligible properties include single-family homes, condominiums and townhomes, or a 2 - 4 unit dwelling. Inter vivos trust, or living
trust, are considered eligible if the trust and the borrowers meet HUD requirements.
• All borrowers must have received reverse mortgage counseling from a HUD-approved housing counseling agency. You must agree
to receive counseling before the application is processed. You will receive a Certificate of HECM Counseling, which is valid for
180 days.
• No income, employment or credit requirements.
How Much Cash Can I Borrow?
The maximum loan amount for a reverse mortgage is based on a HUD formula that mainly considers four factors: age of the youngest borrower, current interest rate, appraised value and the county where the home is located.
What Are Some Benefits Of The Reverse Mortgage?
• You always retain ownership of your home while you live in the home.
• Cash advances can be used for any purpose.
• Loan proceeds are not considered "income" and do not affect Social Security, Medicare, SSI or Medicaid benefits but consult a
local program office or your attorney to determine how or if, monthly reverse mortgage payments might affect your specific
situation.
• Your heirs can keep the home once the reverse mortgage is repaid.
What Type of Interest Rate Options Are There?
Most FHA reverse mortgages are an adjustable-rate loan linked to the one-year U.S. Treasury Security Rate. Any change in the
adjustable rate has no effect on the amount or number of loan advances you receive, but causes the loan balance to grow at a faster or slower rate. The lower the rate, the slower your loan balance grows, and vice versa.
What Are The Tax-Free Cash Options?
• Lump sum advances make cash immediately available.
• Tenure plans provide fixed, monthly cash advances.
• Line of credit makes cash available upon request.
• Consult a tax advisor before deciding on which option.
What Are The Costs Involved With A Reverse Mortgage?
There are closings costs, which can be financed into the loan. These usually include an origination fee, title insurance, appraisal, a mortgage insurance premium. Typically, the only out-of-pocket expense at closing totals only about $300 for the appraisal. You are expected to continue to maintain the property, pay the real estate taxes and hazard insurance premiums.
How Is The Reverse Mortgage Repaid?
The loan must be repaid - either from the sale of the home or through other resources; for example, funds from another asset or a
refinance. Please ask your reverse mortgage loan consultant for details on when payment may be due.
How Is Qualification Affected If I Own The Property As A Joint Tenancy With My Children To Avoid Probate?
A reverse mortgage requires all borrowers to be at least 62 and live in the property so you would be eligible if your children were age 62 and older and lived in the property. Otherwise, they would need to be taken off the title for you to participate.
Can I Qualify If My Property Is Held In A Trust?
Yes, but the trust must be a revocable living trust and all beneficiaries of the trust must be qualified by age. Also the trust must be reviewed and approved by the lender and any changes in the trust during the term of the loan must be reviewed and approved by the lender.
Can I Make Partial Payments On My Reverse Mortgage Loan?
Yes, you may prepay all or part of the outstanding balance on a reverse mortgage at any time without penalty as outlined by FHA. But remember that repayment in full will terminate the loan agreement. You may also choose to make a partial prepayment to preserve more of the equity in the property or to increase monthly payments if you selected a payment plan with monthly payments. By reducing the outstanding balance, you increases the net principal limit available.
What Is The Consumer Education Requirement For A HECM?
Before obtaining a HECM or reverse mortgage, you are required to attend a free, HUD approved consumer education session. The purpose of this session is to explain the legal and financial consequences of obtaining a HECM, as well as other options that may be available to you. This session ensures that you understand the obligations of your loan agreement, and that you do not overlook alternative options that may be more appropriate or cost-effective solutions for your funding needs. Clink on this link to view all of the Counseling Agencies in Arizona. Listed below are the agencies that offer telephone counseling (please ask the counselor to fax a copy of the certificate to me at 480- 563-4772 - so we can move forward, it can take days for the original to arrive in the mail):
Money Management International (MMI) 1-866-889-9342 AARP Foundation 1-800-209-8085 National Foundation of Credit Counselors 1-866-698-6322 What Are The Pros And Cons Of A Reverse Mortgage?
Contrary to some belief, the bank DOES NOT own the home and the heirs do not have to sell the house - the reverse mortgage can be paid through other funds or a refinance as long as it is done within six months of inheritance.
Pros Cons
Alternative to home equity lines
Turns equity into tax-free cash
Different options for receipt of money
Increased cash flow - NO Mortgage Payment
For Information Only - ADL Mortgage Does Not Provide Reverse Mortgages
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More expensive than traditional mortgages
Higher interest rate than other mortgages
Might affect other retirement benefits
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Residential & Commerical Mortgages
