What is a Reverse Mortgage?
We believe that if everyone actually understood how reverse mortgages worked, everyone over 62 year old would have one! A Reverse Mortgage can be a great retirement planning tool regardless of your financial status. Recent market and economic conditions have left many retirees facing a retirement that is less than what they had planned. Some are facing serious difficulties meeting their obligations, paying for their medication, or enjoying an occassional evening out. It is no secret that a Reverse Mortgage is often a great solutions for these individuals, allowing them to experience a better quality of life in retirement. We can often eliminate mortgage payments or other debt, provide funds for much needed medications or medical expenses, provide an emergency fund or provide extra income. However, what is often overlooked is the potential benefit to the retiree who isn't necessarily struggling financially. They are often surprised at the options this retirement planning tool provides, all without incurring a monthly payment or tax liability. Because the rates are so good and all payments are deferred until the retiree(s) no longer lives in the home as the primary residence, many seniors agree with us that the benefits of a reverse mortgage far outweigh the cost. Our reverse mortgage planning specialists are available for a free no-obligation consultation to determine if a reverse mortgage is right for you.
What can Reverse Mortgage be Used For?
- Eliminating existing mortgage payment
- Paying off credit cards, car loans or other debts
- Medical bills and healthcare expenses
- Purchasing long term insurance to protect your other retirement assets
- Eating out rather than eating in all the time
- Golf or other recreation
- College tuition or private school for the grandkids
- Other investment opportunities
- Virtually anything you want
You can also use a reverse mortgage to purchase a home - see Reverse for Purchase.
What's the Catch?
Most people don't have a problem coming up with a reason to want a reverse mortgage, but they resist this concept because it seems a little too good to be true. And most seniors have learned the hard way that "if it seems too good to be true it probably is!" The truth is, reverse mortgages have actually been around for almost 50 years and are now insured by FHA, a division of our federal government. Landmark Mortgage originates exclusively this type of government insured reverse mortgage which is called a HECM (Home Equity Conversion Mortgage).The FHA HECM insurance guarantees you, the reverse mortgage borrower, 3 important things:
- You will receive all of the payments you are entitled to receive under the reverse mortgage contract. If you select the tenure payment to receive a specified amount for life and your lender goes out of business, the FHA insurance steps in and your payments continue for life.
- You cannot out live your reverse mortgage. Even if you pass the point where the home is worth less than the balance you owe, the FHA insurance guarantees you will receive all payments for as long as you live in the home. In addition, the balance can never be called due as long as you are living in the home and maintain your insurance and taxes.
- You can never be upside-down on your home. Here in the Ocala area, we are not unfamiliar with upside-down mortgages. With a reverse mortgage, you (or your heirs) will never be required to pay back more than what you home can reasonably be sold for. The difference is covered by the FHA insurance. With regular mortgages and credit lines, you or your estate can be held liable for any unpaid balance beyond the sale price.
Other seniors have told us that they have heard that you have to "give up your home" to get a reverse mortgage. Nothing could be further from the truth. The reverse mortgage is recorded, the same as any other type of mortgage, and the outstanding balance is due when the home is sold. The loan does accrue interest and the balance will increase over time, but you are never required to make payments, and cannot be foreclosed upon as long as you occupy the property and maintain your taxes and insurance. The reverse mortgage balance must be paid at the time you liquidate the property, the same as any other type of mortgage. Any remaining equity belongs to you or your heirs.
General Borrower Requirements for a Reverse Mortgage
- All borrowers must be 62 years of age or older
- You must own your property with no mortgage, or with a mortgage not exceeding 50-70% of the property
- You must occupy the property as your primary residence at least 6 months and 1 day / year
- You must not be delinquent on any federal debt
- You must obtain HUD consumer counseling, which we can help you with.
Property Requirements of a Reverse Mortgage
- Single family home
- Or a 2-4 unit home with one unit occupied by the borrower
- Or a HUD approved condominium project (our mortgage planners can help you find out if your condo qualifies)
- Or a manufactured home that meets FHA requirements
There are not nearly as many financial requirements to a reverse mortgage as there are with a regular mortgage or credit line. But because you are required to maintain taxes and insurance on the property, timely payment of these payments may be verified.
Payment Plans Available on a Reverse Mortgage
- Tenure - equal monthly payments for as long as at least one borrower is living in the home as their primary residence.
- Term - Equal monthly payments for a specified period of time
- Line of Credit - an available amount that can be drawn upon until the maximum amount has been reached. Any unused credit line will increase every year giving the borrower more available credit. You can learn how much you can receive in a line of credit or lump sum with our reverse mortgage calculator.
- Modified Tenure - A combination of line of credit and scheduled monthly payments for as long as you live in the home.
- Modified Term - A combination of line of credit and fixed monthly payments for a scheduled period of time.
Payment plan can be modified even after the loan is closed for a nominal. The amount you can receive either in a lump sum, line of credit or monthly payment is based upon the age of the youngest borrower, the current interest rate, and the appraised value of your home (not to exceed $625,000). That is why we ask for your birthdates in our reverse mortgage calculator instead of your credit score.
Reverse Mortgage Costs
Most of the closing costs associated with your Reverse Mortgage can be included in the financing so you do not have to pay them out of pocket. These costs include:
Mortgage Insurance Premiums. This is the insurance that the FHA uses to make the payment guarantees and non-recourse aspects of your reverse mortgage loan. The premium for the standard HECM is 2% of the appraised value of your home (not to exceed $625,000), and is paid to FHA. You can finance the mortgage insurance premium as part of your reverse mortgage loan. There is an option to pay only 0.5% of the appraised value for MIP, however the amount you are allowed to draw or access is significantly reduced.
Third Party Charges. You will have very similar costs to that of a normal conventional refinance including appraisal, title search and insurance, surveys, inspections recording fees, mortgage taxes, credit check and other fees. The majority of these can be paid from the loan proceeds. Typically a loan application fee to cover appraisal and credit costs is collected at the time of application.
Origination Fee. You will pay an origination fee to compensate Landmark Mortgage Planners. This fee is capped at $2500 up to $125,000 value, or 2% of the first $200,000, and 1% of the amount over 200,000.
Servicing Fee. This fee is for the maintenance of your account: account statement disbursing loan proceeds and customer service, and is typically $30/month. This is not a fee that you must pay out of pocket. A reserve is set aside at closing for payment of this fee. Any unused portion is reimbursed to the reverse mortgage borrower when the loan is paid in full.
Rates. Rates vary from program to program. We show a variety of programs on our reverse mortgage calculator with a selection of rates to choose from.
Finally, if you are still on the fence - consider this. If there were a bank where the following were true would you invest?
- You could invest and make subsequent withdrawals, but the account would still appreciate based on the original investment.
- Withdrawals are free from any penalties.
- Withdrawals are not subject to taxes in any way.
- The account is insured to not only guarantee all payments but also protect you and your heirs from any future liability resulting from withdrawing more than your balance.
Your home combined with a reverse mortgage is just such an investment. When you look at it this way, a reverse mortgage makes a lot of sense. Meeting with our reverse mortgage specialist can help clear up all of your questions.