Reverse Mortgages or Home Equity Conversion Mortgages

A reverse mortgage, or home equity conversion mortgage (HECM) converts home equity into cash.  Money paid in over the years plus the value appreciation is paid back to the homeowners who retain the title and continue to live in the in the property.
A reverse mortgage amortizes negatively. The payments the borrower receives add to the balance owed at the end of the loan and interest accrues at a fixed or adjustable rate. The borrower will never owe more than the property is worth, nor can the lender seek access to other assets. The lender places a lien on the property but as long as the borrower lives in and maintains the home, there is never any repayment obligation.

Events that trigger repayment include:

  • A move to another home as a principal residence or permanent absence (12 months or more).
  • A specified maturity date.
  • Death of the last surviving Homeowner.
  • Sale of the property
  • Failure to pay taxes and insurance or make repairs.

The borrower may pay off the loan through sale of the property or prepayment at any time without penalty.

Eligible Borrowers

  • Youngest borrower must be at least 62 years old
  • Own home free and clear or have a small mortgage balance with substantial equity (40%-50% equity makes the potential payout worth the costs)
  • Not in default on any FHA debt
  • Reside in the home as primary residence or occupy a new home (certificate of residence within 60 days)

Eligible Properties

  • Single family homes
  • FHA approved condos and co-ops
  • Manufactured homes built after 1976 and installed on a permanent foundation
  • 1-4 unit homes with one owner-occupied unit

What Can a Reverse Mortgage Accomplish?

Many senior homeowners are not aware that they have a solution to some financial issues when they own a home. You can improve your quality of life and living situation by learning how tapping into your home's equity may alleviate some stress and contributes to a longer, happier lifestyle while still remaining in your home.
A Reverse Mortgage or Home Equity Conversion Mortgage can do the following:

  • Supplement Social Security, pension income or public assistance benefits.
  • Postpone drawing Social Security benefits thus increasing the monthly benefit.
  • Provide an income the borrower cannot outlive.
  • Stop Mortgage Payments.
  • Prevent Foreclosure.
  • Pay for in-home care, medical expenses, and long-term care insurance.
  • Prepare a home for aging in place.
  • Pay off credit cards, debts, and existing mortgage balances.
  • Buy a second home or a new home.
  • Upsize, downsize, move to an active community, or relocate closer to family.

Reverse Mortgage Refinance, Purchase, or Line of Credit

HECM FOR REFINANCE
The HECM for refinance enhances the quality of life by increasing cash flow. Payout can be monthly, as  needed, lump sum or a combination of methods.

 

HECM FOR PURCHASE

The HECM for purchase provides a lump sum for purchase of a home. Buyers usually need to make a substantial down payment.

 

HECM LINE OF CREDIT

A reverse mortgage line of credit allows the borrower to draw funds from the equity in the home as needed. The borrower pays interest only on the amount withdrawn and the remaining line of credit earns interest, at the same rate as withdrawals, like a savings account. If there is a small mortgage balance on a property, the homeowner could draw out the amount needed to pay off the existing mortgage and keep the rest available as a line of credit for future needs.

 

Reverse Mortgage Benefits

TAPPING BUILT-UP EQUITY

The main benefit or a reverse mortgage is allowing a homeowner to tap the built-up equit in the home by receiving immediate cash, lifetime pyaments, or a line of credit.
 

LIFETIME INCOME

Tenure payments provide a monthly income that will continue even if the homeowner outlives the actuarial life-expectancy tables.
Homeowners can live in the comfort and privacy of their own homes and with the security of stable income.

 

NONRECOURSE FINANCING

Neither the homeowner nor the heirs will ever owe more than the home is worth, even if the home value declines or payouts exceed the value. The lender cannot seek other assets to make up for a shortfall. If the homeowner or heirs try to sell the property in an arm's-length (not to a relative) sale and the proceeds fall short, the remaining balance is excused. Mortgage insurance compensates the lender for a shortfall.

 

TAX-FREE PAYOUTS

The IRS does not consider money borrowed through a reverse mortgage taxable income.

 

When is a Reverse Mortgage Not Beneficial?

HIGH-RISK, LOW-RETURN INVESTMENTS

 

PURCHASE AN ANNUITY

 

LOW EQUITY OR PROPERTY VALUE

 

SHORT-TERM, SMALL FINANCIAL NEEDS, NO COMPELLING NEED

 

SUBSTANTIAL OTHER ASSETS

 

PAYING FOR NURSING HOME CARE, BUYING INTO A CONTINUING CARE COMMUNITY, BUYING NEW HOMES NOT READY FOR OCCUPANCY

 

What the Family Needs to Know

WHO OWNS THE PROPERTY? 

A child or grandchild whose name has been added to the title can disqualify the borrower.

It's a bad idea to remove a co-owner, spouse or life-partner from a title for the purpose of qualifying for a reverse mortgage; if the older resident passes away or must move out, to a nursing home or assisted living, for more than 12 months, the loan comes due and the remaining resident will have to pay off the loan or move out.

 

WHAT DO HEIRS RECEIVE?

When the last surviving homeowner passes away, the remaining equity in the property goes to the heirs, not the bank. But heirs must either pay off the loan to keep the home or sell it to access the equity. Heirs have a choice to sell (must be an arm's length sale) the house to pay off the debt, pay off the debt from another source, or obtain a new forward mortgage on the home.

If the house sells for less than the mortgage balance, the lender is compensated for the difference by FHA Insurance.

If there are no heirs, the bank may take possession of the home and sell it. The estate may retain ownership of the property but it must pay off the loan.

 

Counseling - The Important First Step!

Don't underestimate the importance of the counseling session. It must be completed before going forward with the application process. The Certificate provided by the counselor becomes part of the application file.  It would be a wise choice to have a relative or friend present to participate in this counseling session. The lender cannot be a part of this process.

The counselor is responsible for:

  • Helping the client understand the appropriateness of a reverse mortgage to meet the needs as well as alternatives.
  • Explaining the features of the reverse mortgage and its impact on the client and heirs.
  • Discussing financial and other needs for remaining in the home, if that is the client's goal.
  • Confirming the client's comprehension of the reverse mortgage by asking specific questions.

The counselors may charge a fee, so ask in advance, it's usually about $125. This fee may be reduced or waived in certain circumstances based on the ability to pay but they cannot refuse on the basis of inability to pay.

RESOURCES FOR REVERSE MORTGAGE LENDERS:

Steve Peterson
Reverse Mortgage Specialist
(818) 914-2536 Ofc
(818) 515-5754 Cell
speterson@S1L.com

http://www.myrmagent.com/stevepeterson/
Serving Los Angeles, Ventura and Santa Barbara!

Shelley Wells
Reverse Mortgage Specialist
Security 1 Lending
(805) 377-9000 Direct

(866) 618-1734  Fax

NMLS #448429

How may I

help You?

BETTY FERNANDEZ REALTOR®            Broker-Associate

(805) 766-1495

Betty@Betty4RealEstate.com

CalRE #01452802

CREDENTIALS:

Former Certified Residential Appraiser

Seniors Real Estate Specialist (SRES)
Certified Probate Real Estate Specialist (CPRES)

Bilingual English/Spanish

Notary Public

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