Maggie O'Connell

This is a question I am asked on occasion and it catches me by surprise every time because it seems to be such a basic part of reverse mortgages. That is, tapping equity to use in retirement. But it reminds me also that reverse mortgages remain a mystery to some.

A reverse mortgage is wonderful for people who don’t have an existing mortgage. Since you don’t have a mortgage to pay off, there are more available funds to you in a line of credit or monthly tenure or term

payments.

Remember, a reverse mortgage is structured like a regular mortgage in that you are borrowing money and promising to pay it back. Instead of paying your loan back every month, like conventional HELOC’s or fully amortizing mortgages that require you to make monthly payments, you delay the final payment until one of the maturity events.

When you sign up for a reverse mortgage, you agree to pay the entire balance at a later time, when you move away from the home permanently, sell the home or the last borrower passes away or any one maturity event takes place. Upfront fees, interest and mortgage insurance charges are added to the reverse mortgage loan balance.

The HECM reverse mortgage is insured through the FHA or Federal Housing Administration, a department of HUD. If your home value ends up lower than your mortgage balance, (upside down reverse mortgage) you or your heirs are not responsible for the difference. Your home alone stands for the debt. The FHA insured HECM

reverse mortgage is considered a non-recourse loan.

When the reverse mortgage loan becomes due as a result of reaching one of the maturity events, the reverse mortgage servicing department will allow time for the loan balance to be paid through the sale of the home or other means.

The reverse mortgage provides many different solutions for many seniors. The tax free aspect of a reverse mortgage makes it a valuable tool for people who are trying to stretch their assets as far as they can. It allows older homeowners to tap into their home equity to provide for themselves during retirement.

Maggie O'Connell

Reverse Mortgage Specialist

800-489-0986

Do You Qualify For A Reverse Mortgage?

The first qualifier is age, all borrowers must be at least 62 years old. Older borrower’s get more money than younger because it is expected they will hold the loan for a shorter period of time.

If you have a mortgage, we must look at the principal balance of your existing mortgage in relation to your home value. With reverse mortgages, we don’t have clear loan to value (LTV) ratios like forward or conventional mortgages.

We calculate the LTV based on the youngest homeowner’s age, expected interest rate and home value. So we just need to run your information in a reverse mortgage calculator to determine how much is available to you. You will find reverse mortgage calculators on the web but requesting a customized calculation will assure the rate and term option that works best for you and a more accurate estimate.

If your current mortgage balance is within the lending limits of the reverse mortgage, it will be paid off. You no longer have mortgage payments to make! Remaining funds can go to you in a direct payment of cash or in a line of credit or monthly payments to you.

If you don’t have an existing mortgage, even better! All of the available reverse mortgage proceeds are available to you in the line of credit, cash or a regular monthly stipend.

When the last remaining homeowner leaves the home permanently, the loan will become due as a maturity event has taken place.

When A Reverse Mortgage Becomes Due, How Long Do Heirs Have to Repay?

The Reverse Mortgage Deed of Trust states the reverse mortgage is due immediately upon the death of the last borrower (or sale of home or permanently moving away). If you take the word, 'immediately' literally, it seems time is no time for clearing out the property, getting the home ready for sale and going through the sale or refinance process. So you need to know what‘immediately’ really means. How long do the heirs have to pay off the reverse mortgage? I talked with the major reverse mortgage servicing lenders and they told me they follow Hud’s guidelines, so let’s look at the HUD guidelines for answers. In the HUD Handbook 4330.1 13-34, it details the lender’s requirements in getting the mortgage paid and settled.

If the mortgagor or the mortgagor's estate fails to

repay the outstanding balance on a due and payable mortgage or if

the mortgagor fails to deed the property to the mortgagee within

the prescribed time, the mortgagee must begin foreclosure

proceedings within 3 months. The Field Office may authorize the

mortgagee to delay the beginning of foreclosure proceedings

longer than 3 months if a sale by the mortgagor or the estate is

in process. If the estate is making a reasonable effort to sell

the property, these extensions should be granted in 3-month

intervals with the entire period not to exceed 12 months.

Each lender servicing agent will have a slightly different policy or timeline, so it is important that you talk with the servicing department early and often during the process.

Please understand, if you or your estate are making a diligent effort to get the home sold or refinanced and you are communicating with the servicing agent frequently and requesting extensions if needed, you will find a very reasonable time frame to get the reverse mortgage paid off and settled.

Questions To Ask To Help Select the Best Reverse Mortgage Option For You.

To help determine the best option for you, ask yourself the following questions:

Is a large part of the available funds being used to pay off a mortgage or debt?

Will you be living in your home beyond 5-7 years?

Is a fixed rate more appealing to you over a variable or adjustable rate? Will you sleep better at night knowing your interest rate is fixed?

If the answer is yes to some or all of these questions, you may be inclined to prefer the fixed rate option which requires a lump sum draw of cash at the closing of the reverse mortgage. If you are satisfied with a reduced amount, you may opt for the ‘saver’ option to keep up front costs low. Many of the fixed rate options carry no loan origination fee also keeping costs down.

Or, are you looking for a way to afford to stay in your home, need to supplement your income and want to access money over time?

Do you have a small mortgage and debt, or no mortgage at all?

A line of credit or monthly payment tenure option may be best for you. If you can settle for a lower line of credit, the saver plan will definitely save you in upfront costs (that accumulate interest and are paid when you leave your home permanently). And if you want a monthly payment, be sure to request printouts for the variable rate saver option. The payment to you is typically not a lot less than the standard option.

Only the variable rate option will provide for a line of credit or monthly payment to you.

The factors involved in your decision to get a fixed or variable rate are different for reverse mortgages than they are for conventional mortgages. Since you don’t have to make payments, a variable rate doesn’t carry the risk for not being able to afford a payment if rates go up dramatically. It will have an impact in the amount that will be paid back in the end and may affect the remaining equity at that time. But if you don’t need the lump sum, taking it all at once will accumulate interest at a faster rate from day one. I’m not trying to convince anyone to choose one rate option over the other, I am only pointing out differences between the options and trying to help you explore the best option for you.

Sometimes I witness people influenced by family members or professionals who recommend the fixed rate without understanding these details between the two options. I advocate education and exploration because this is the second most important decision to make regarding your reverse mortgage. Getting opinions of others is important, but more important is to read and learn and put together the pieces of the puzzle yourself. The first important decision, of course, is deciding to get a reverse mortgage in the first place.

Just Because You’re Old Doesn’t Mean People Can Tell You What To Do!

This article caught my attention. Son tried to evict 98 year old mother from home The son of a 98 year old woman tries to evict his own mother from her home She had signed the home over to him years earlier. And he’s not a compassionate person obviously. But she doesn’t want to leave her home. Most seniors I meet have an adamant desire to remain in their home until they ‘go out feet first’ as many say. The first lesson we can learn is, don’t sign your house over to your children. Revocable Living Trusts are the best instrument to retain title and control and avoid costly probate.

The elderly mother could have done a reverse mortgage to pay someone to care for her and the money from the reverse mortgage could have been used to modify her home and make is safe and comfortable for an elderly person. Of course, not everyone has a son who would force his mother out of HER home. But seniors should take control of their assets and have a full estate planning package done including power of attorney, health care directive or living will and the revocable living trust and record the property in the name of the trust.

I have witnessed clients who had to get costly conservatorships because they did not complete a simple power of attorney document . It’s also not a bad idea to have a capacity test done to make it very clear that you are not incapacitated at the time the power of attorney was executed to assure It will be acceptable at the time it is activated.

The woman stood her ground, went to court and was awarded the right to stay in her home. Good for her! I see far too many people who do what their children say even if it is against their own wishes and desires. Just because you are old doesn’t mean you can’t make decisions on how you live your life. So make it clear in a legal document in advance and hopefully you’ll get what you wish for!