Ever wonder how a reverse mortgage works? For folks that have lived in their home for a long time, they may very well be sitting on a gold mine. Home prices have increased greatly over the last thirty years, and nationally have nearly doubled in value over the last ten years. This has left a great many homeowners with valuable equity in their homes and many different options to access that equity, home equity loans and mortgage refinances being the most common. For older Americans, there is another, less common option that is growing in popularity as home prices have increased and baby boomers have moved closer to retirement age: the reverse mortgage. But do you know what it is, and do you know how a reverse mortgage works?
So what exactly is a reverse mortgage? A reverse mortgage is a loan product that allows homeowners 62 years of age and older to use their equity to generate tax-free income, without having to sell the home or take on a new mortgage payment. In fact the reverse mortgage is exactly what the title states, the reverse of a standard mortgage. With a standard mortgage, the borrower (or homeowner) makes monthly payments to the lender (or bank or mortgage company), in order to pay back the loan that the lender originally lent to for the purchase or refinance of the house. This payment includes interest that the lender charges the borrower for the loan. In a reverse mortgage, the situation is reversed; the lender makes monthly payments to the borrower. However, in both a standard and reverse mortgage, the lender secures their loan amount by using the house as collateral.
There are a few factors that determine how much money a borrower will receive from a reverse mortgage, such as the value of the home, borrower’s (and co-borrower’s) age, current interest rates and any lending limits that may be standard for your geographic area. As a rule of thumb, the older the borrower and the more valuable the home, the larger the available loan amount. Homeowners can choose how they want to receive their payments, either as a lump sum, monthly payments or as a line of credit. The line of credit is the most popular option, with nearly 60% of reverse mortgage borrowers choosing to the option to draw income or a lump sum off the line at the time of their choosing. And the proceeds from the reverse mortgage can be used for anything, completely at the discretion of the borrower, though most borrowers use the funds for home repairs or modifications, health care expenses, to settle other debts, or for their long-planned vacation! Reverse mortgages are available for nearly all property types with the exception of co-ops, though co-op owners in some metropolitan areas, specifically New York, should have local options. If you are in retirement, or nearing retirement, and think this may be the product for you, I will go into more detail about exactly how a reverse mortgage works.
For reverse mortgage borrowers with an existing mortgage, that mortgage will need to be paid off completely, so that the new reverse mortgage will be the only lien on the house. If the proceeds from the reverse mortgage are not ample to pay off the existing mortgage, the borrower will need to access savings or other sources to pay off the rest of existing mortgage amount. In this scenario, the borrower won’t have access to any additional funds from the reverse mortgage; however, they will no longer have a mortgage payment! The more common scenario is one in which there is a small or no mortgage on the home and then the borrower is able to access nearly the full amount of the reverse mortgage to use at their discretion. No monthly payments are due on the loan and the loan is repaid when the moves or sells the home, passes away, or ownership otherwise changes hands. If the home is sold and the proceeds of the sale exceed the mortgage amount, the balance belongs to the borrower or their heirs.
One very important facet of the reverse mortgage process is the consumer counseling that is required for borrowers contemplating a reverse mortgage. Your lender can help you find counseling agencies and most programs are approved and monitored by HUD and/ or AARP. The counseling is required to make sure that the terms and risks of the program are clear to you. Counselors are obligated by law to review with you all of the implications of the new mortgage, and what your potential options are.
Overall, for older Americans contemplating a stress-free retirement, the reverse mortgage may be just the option! Just make sure that you know your options and goals. . . and how a reverse mortgage works.
Posts Tagged ‘Reverse’
How A Reverse Mortgage Works
January 5th, 2010The Reverse Mortgage is Meeting the Needs of Seniors in a Big Way
December 24th, 2009In most cases the senior is looking places to find money to off set the major loses they have felt from the banking and investment crisis. The one place that is still a safe haven in many areas is the home, even with declining values. The main reason is that most seniors purchased their homes when values were mush lower before the great appreciation era. If a seniors still has a mortgage on their home and many do have a current mortgage on their home and have to make payments every month. If a senior has a first mortgage lets say just for $100,000 at a 6% rate they are putting out over $600. 00 per month or $7,200 per year. This amount if they did not have to make the payment would be added to their income that they would be able to use to live. In many cases seniors over the years when the economy was booming many took at 30 year loans and or adjustable rate mortgage and are now faced with higher payments and they are trying to stay afloat. If a senior is faced with this problem they should really consider a Reverse Mortgage for many reasons not to mention relief from payments. In many cases not only would they be free from mortgage payments, but they would receive additional funds to use as they see fit. Under the Reverse Mortgage program they senior controls how and what they spend the money on once they have closed. Some things never change when doing a Reverse Mortgage and that is they still must pay the taxes and insurance on their home. If a senior is use to having an escrow of taxes and insurance they maybe able to set aside the monies with the company and have them pay it yearly for them. One thing that all seniors should be looking at is the availability to access the money that they need from their home that they paid for over the course of their lives. In the years that you will need it the most and not have to worry about paying it back in their lifetime. Many seniors are now thinking that if they take out a Reverse Mortgage and the bank or Mortgage Company goes out of business they will be out of luck. This is not true it is protected by the FHA mortgage insurance, that if they do go out of business then Federal Government takes over and pays them the money. The Reverse Mortgage is the safest mortgage in the entire mortgage industry. Unlike a typical mortgage where a lender has many options to force your paying of the loan, the Reverse Mortgage has the full protection of the US Government that guarantees that the senior will never have to leave their home for as long as they live. This of course is providing they pay their taxes and Insurance and continue to live in the home as their primary residence. Now in 2009 a new program is emerging within the Reverse Mortgage and this a great option for many seniors who have one reason or another sold their home or have to move to a newer location. The Reverse Mortgage purchase program is now available to seniors over the age of 62. The program is design to allow seniors to purchase a home without any mortgage payments for life. Now just to make it very clear this does not mean that a senior can purchase with no money down. This is not the same mortgage that got this country in to the financial situation that we are in where people would by a home with zero down or less in some cases. A senior who is looking to purchase a home will have to have money to purchase a home; it is all based on the age of the person and the appraised value of the home. Let’s say that a person age 62 wants to purchase a home that is appraised at $200,000, they would need approximately 40% down payment on the home. They would in most cases be able to finance all or part of the closing cost within the Reverse Mortgage. But let’s look at it in another way! Remember the older you are the less you will need down!If that same person wanted to purchase a home using a conventional mortgage, they would need at least 20% down and would have to qualify with at least a 720 credit score and have the income to qualify for the mortgage payment. So let’s look at the difference! Conventional Reverse Mortgage $200,000 Purchase price ………………………$200,000$40,000 down payment ………………………. $80,000$160,000 mortgage ……………………………. $120,000 $858. 00 per month payment……………………Zero per monthNow this is what it looks like on paper for a conventional mortgage verses the Reverse Mortgage the big difference is that a senior for a Reverse Mortgage purchase they will not have to qualify for the loan they already are if they are 62 or older. Also under the conventional mortgage if a senior fails to make a payment on their mortgage they will be foreclosed on just like anyone else. For the senior who has a mortgage currently and is worried if they are going to be able to make payments on the mortgage Think Reverse Mortgage! No Income or Credit qualifying; if think this isn’t a big deal call your mortgage banker and see what it takes to get a mortgage today. Also this is very important issue your conventional mortgage is not guaranteed that you will stay in your home for the rest of your life! Here is what you have to do to get a Reverse Mortgage for your home! Speak to a Reverse Mortgage Specialist who can educate you on all aspects of the program. You will be required to have a FHA Approved counseling session and receive your certificate to hand to the mortgage company. A Fully executed loan application must be signed and submitted. The FHA appraisal must be completed for value and condition of property. The title search must be completed and cleared of any and all liens and judgmentsAll insurances must be changed all endorsements Closing is scheduled once all final conditions have been cleared. Closing takes place either in the home or at a title office. The client must wait three business days for the cancelation period which includes Saturdays. Money is disbursed and all existing liens are paid off and any additional funds available are sent to the person who closed on the loan. So if you are thinking of how you are going to make it through these hard times, waiting to see if the market will ever turn around you are loosing money in your home. Remember this as the stock market, and real estate even stay where it is now you may never see the return of that money.
Forclosures Have Met Their Match… Reverse Mortgages
December 11th, 2009Foreclosure filings were reported on 2. 3 million U. S. properties in 2008, an increase of 81 percent from 2007 and up 225 percent from 2006, according to the RealtyTrac U. S. Foreclosure Market Report released January 15, 2009. The soaring number of forclosures have sent ripples through the housing and banking industry with the affects being felt by millions. According to RealtyTrac, California, Florida, Arizona posted the highest 2008 foreclosure totals. A total of 523,624 California properties received a foreclosure filing in 2008, the nationâs highest state total. Foreclosure activity in the state increased nearly 110 percent from 2007 and nearly 498 percent from 2006. With 385,309 properties receiving a foreclosure filing in 2008, Florida documented the second highest state total. Florida foreclosure activity increased 133 percent from 2007 and nearly 412 percent from 2006. Arizonaâs 2008 total of 116,911 properties receiving a foreclosure filing was third highest among the states. Foreclosure activity in Arizona increased 203 percent from 2007 and 655 percent from 2006. Other states with Top 10 totals for 2008 were Ohio, Michigan, Illinois, Texas, Georgia, Nevada and New Jersey. With mounting job losses and a weakening economy, forclosures and mortgage delinquencies are expected to continue to rise. The nationâs unemployment rate shot up at the end of the year, reaching 7. 2 percent in December â its highest level since early 1993, according to a Labor Department report release January 9, 2009. That puts U. S. job losses at 2. 6 million for 2008. However, with all this doom and gloom in the housing market, there is a glimmer of hope for senior homeowners 62 years of age and older. That hope comes in the form of a HUD Home Equity Conversion Mortgage (HECM) or Reverse Mortgage. Those who have obtained a reverse mortgage need not be concerned with the increasing forclosure rates and whether or not they can make their mortgage payments. With a HECM reverse mortgage, there are no monthly payments required.  Borrowers remain in their homes for life and never have to worry about making a mortgage payment again. All they need to do is keep the property in good repair, pay their property taxes and keep their homeowners insurance current and paid.  For seniors who currently do not have a reverse mortgage, now may be the time to explore the option. It does not matter if a senior is currently late on their mortgage. They may still qualify for a reverse mortgage. To qualify all borrowers on title must be 62 years or older, occupy the property as their primary residence and not currently be in a bankruptcy. Thatâs it! MLS Reverse Mortgage has helped save several seniors who were months away from losing their homes.  So, in these tough economic times, there is still hope for seniors looking for mortgage payment relief or cash out to enjoy lifeâs pleasures. Learn more online: http://www. mlsreversemortgage. com
