Does a Reverse Mortgage Just Make Sense for You?
As you enter your golden years, you may find yourself thinking about your various options to supplement retirement income. After all, retirement symbolizes the end of standard work obligations, and one’s growing income is often replaced by a fixed income from sources like social security and pensions. And with as much as 50% of older Americans’ net worth tied up in home equity, you may become increasingly interested in learning more about what a reverse mortgage loan is and how to use it as a financial planning tool.
A reverse mortgage is a home-secured loan that’s exclusively for homeowners and homebuyers age 62 and older (only one homeowner needs to be the age of 62). It allows borrowers to convert some of the equity in their home into income-tax-free funds. (Not tax advice, consult a tax professional.) There are different loan products to choose from that offer you options on what interest rate you are charged, how much money you can access, and how you receive your payments. Unlike a regular “forward” mortgage or traditional home equity loan or home equity line of credit, there are no monthly principal and interest payments as long as at least one of the borrowers lives in the home as their primary residence. As with any mortgage, in order for the loan to remain in good standing the borrower must also keep up with property-related taxes, insurance and upkeep.
The #1 Asked Question/Myth About Reverse Mortgages
If I take out a reverse mortgage loan, does the lender own my home?
NO.. When you take out a reverse mortgage loan, the title to your home ALWAYS remains with you…
Other Common Questions About Government Insured Reverse Mortgages
What are the basic requirements for a reverse mortgage?
- All borrowers must be age 62 or older (this applies to all co-owners listed on the home’s title).
- The home must be your principal residence. And it must meet standards set by the United States Department of Housing and Urban Development (HUD)* on property type and condition. You may be able to use your reverse mortgage to pay for any required repairs in order to meet these standards.
- Eligible property types include single-family homes, 2- to 4-unit properties, manufactured homes meeting certain criteria, condominiums that are approved by the Federal Housing Administration (FHA), and townhouses. Co-ops do not qualify.
What if I still owe money on a first or second mortgage?
Many people refinance their existing mortgage(s) with a reverse mortgage in order to substantially reduce their monthly bills. Proceeds from your reverse mortgage would first be used to pay off any existing mortgage(s). This means the balance of your existing mortgage(s) will be added to the balance of your reverse mortgage. A licensed loan officer can help you find out if you are eligible, and will explain the flexible repayment feature that gives borrowers greater financial flexibility and control over their monthly expenses. Most importantly you are in the driver seat when it comes to making payments! Not the lender….
Can I refinance my existing mortgage, home equity loan, or other debts with a reverse mortgage?
Yes. For many homeowners age 62 and older who are looking to refinance their mortgage(s) or consolidate debt to reduce their monthly bills, a reverse mortgage can be a more suitable solution. That’s because a reverse mortgage has a flexible repayment feature, which puts you in control of how much you pay towards principal and interest each month. For as long as you live in the home, you can choose to pay as much as little as you like, or make no monthly loan payment at all — freeing up money for other purposes.
As the homeowner, you’ll still have to pay property taxes and insurance, and keep the home in good shape.
Will I have to pay any fees?
With the exception of a fee for government-required reverse mortgage counseling and the normal home appraisal fee, most of the fees associated with a reverse mortgage can be financed with your loan, so there’s no immediate out-of-pocket cost. The costs are added to the loan amount (“principal”) and paid along with the accrued interest when the loan becomes due. Depending on the loan option you choose, these fees may include an origination fee, closing costs, a mortgage insurance premium (required for HECM loans) and a monthly servicing fee. We will let you know exactly what costs are involved.
What if one of the co-borrowers passes away or must move out for health reasons?
The other borrower continues to own and live in the home — and enjoy all the benefits of their reverse mortgage.
Will I be taxed on my reverse mortgage proceeds?
Reverse mortgage loan funds are not subject to income tax. Contact your tax advisor for additional details
Reverse Mortgage Loan Safeguards And Protections:
Understandably, financial safety is a concern for many consumers who are considering loans. Fortunately, with the HECM reverse mortgage, the U.S. Department of Housing And Urban Development (HUD) puts consumer safety as a top priority and continuously adds protections for consumers as the borrowing climate changes. Such safeguards include:
- Limitations on Lender Fees
Origination fees are capped and regulated by the federal government.
- Reverse Mortgage Counseling
HUD requires that all prospective borrowers go through mandated counseling sessions with an unbiased third party FHA-approved counseling service before the loan application is submitted. The session will provide you with further reverse mortgage information as well as information on other possible financial options.
- Financial Assessment for Borrowers
Lenders perform a financial assessment to evaluate your ability to fulfill the loan obligations listed above, thus minimizing the possibility of default.
- FHA Reverse Mortgage Loan Insurance
You are protected from ever owing more than your home’s value. If your loan exceeds the value of the home, FHA insurance will pay the difference to the lender for you.
- Non-Recourse Loan Protection
The loan is secured by a lien on the home, but no assets other than the home may be used to repay the debt. This means your other assets are protected.
- No Pre-Payment Penalties
No additional costs will be incurred if you choose to repay your loan during the term. This applies to both partial and full payments.
Reverse mortgage loans have proven to be a valuable financial tool in retirement planning. When used intelligently, this loan is poised to provide you with a viable option in supplementing retirement income and creating a flexible payment option that no other loan in the United States offers. To learn more about this versatile loan, speak to a licensed reverse mortgage professional
The Loan Process:
STEP ONE: Initial Consultation/Education
- Education. Your MBF loan specialist will have all the information you’ll need to help you decide if a reverse mortgage is the right solution for you. If its not the right decision today it very well may be the right decision tomorrow. Unfortunately as we grow older expenses continue to increase while our fixed income does not. So keep in touch with your reverse mortgage loan officer on a regular basis
STEP TWO: On the path to financial freedom
- Application. If you’ve decided to move forward you’ll choose a lender and submit your application to them. The application includes some personal information, and a financial assessment will be conducted to make sure you’ll be able to afford ongoing expenses like property taxes and insurance and home maintenance.
- Counseling. You’ll meet with a third-party reverse mortgage counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD), to make sure you understand all aspects of the loan.
STEP THREE: Loan Processing & Underwriting.
- Your home will be appraised, by an independent appraiser, to determine the value. Then the appraisal and loan package will be sent to MBF underwriter for review and approval. The underwriter will make sure all the information in the package is correct and compliant with all laws and regulations.
STEP FOUR: The Finish Line
- Signing Closing Documents. After your loan application is approved, you will sign your closing documents with a title officer or attorney (depending on your state’s requirements).
STEP FIVE: Its Really Here
- Funding and Disbursement. Three days after closing, the loan funds are disbursed and you can access them according to the payment plan you selected. Your loan funds will first be used to pay off any existing mortgage on your home, a new lien (the reverse mortgage) is placed on the home, and you can use the remaining funds from your reverse mortgage however you choose.
STEP SIX : ENJOY
Sit back, relax and enjoy your retirement the way you always dreamed it should be..
STEP SEVEN; Spread The Word
Please help us tell as many people how a reverse mortgage with MBF changed your life