Rating 4, 8 (3) · Deeds and mortgages on loans are registered instruments, but that doesn't mean that the loan hasn't been sold since the time it was first. When you apply for a reverse mortgage loan, your home title stays with you. If you move, sell your home, or the last surviving borrower or eligible non-borrowing spouse dies, you or your estate will have to repay the HECM loan, but you will never owe more than the value of the home. The content of this page provides general information for the consumer.
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There may be other resources that also meet your needs. In a word, a reverse mortgage is a loan. A homeowner who is 62 years of age or older and has significant home equity can apply for a loan against the value of his home and receive funds such as a lump sum, a fixed monthly payment or a line of credit. Unlike a term mortgage, the type used to buy a home, a reverse mortgage doesn't require the homeowner to make any loan payments.
A reverse mortgage can look a lot like a home equity loan or a home equity line of credit (HELOC). In fact, similar to one of these loans, a reverse mortgage can provide a lump sum or line of credit that you can access as needed, depending on how much of your home you have paid and the market value of your home. But unlike a home equity loan or HELOC, you don't need to have income or good credit to qualify, and you won't make any loan payments as long as you occupy the home as your primary residence. Only the lump sum reverse mortgage (one-time outlay), which gives you all income at once when you close your loan, has a fixed interest rate.
The other five options have adjustable interest rates, which makes sense, since you're borrowing money for many years, not all at once, and interest rates always change. Variable-rate reverse mortgages are linked to a benchmark index, often the Constant Maturity Treasury Index (CMT). To further complicate matters, you can't borrow your entire starting capital limit for the first year when you choose a lump sum or line of credit. Instead, you can borrow up to 60% or more if you use the money to pay off your installment mortgage.
If you choose a lump sum, the amount you receive upfront is all you will receive. If you choose the line of credit, your line of credit will increase over time, but only if you have unused funds on your line. When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan where the lender pays you.
Reverse mortgages are part of the equity in your home and convert it into payments to you, a kind of prepayment of the equity in your home. The money you receive is usually tax-free. You usually don't have to pay back the money while you live at home. When you die, sell your home or move out, you, your spouse or your estate would repay the loan.
Sometimes, that means selling the house to get money to pay off the loan. With a reverse mortgage, you apply for a loan against your home equity. In this agreement, the lender makes the payments to you. Basically, you receive an upfront payment of your property's net worth.
These FAQs are organized in the order in which they occur during the loan origination process. If you read all the questions from start to finish, you will go through the entire process. Lenders must perform a financial evaluation of each reverse mortgage borrower to ensure that they have the financial capacity to continue to pay mandatory obligations, such as property taxes and homeowners insurance, as stipulated in the Loan Agreement. If a lender determines that a borrower may not be able to keep up with property taxes and homeowners insurance payments, they will be authorized to set aside certain amount of funds from the loan to pay future charges.
For the first 12 months after closing, a borrower cannot access more than 60 percent of the loan's disposable income. In the thirteenth month, a borrower can access as much or as little of the remaining funds as he wants. There are exceptions to the 60 percent rule. If you have an existing mortgage, you can cancel it and take an additional 10 percent of available funds, even if the total amount used exceeds 60 percent.
You will also be charged an annual MIP equal to 0.5 percent of the outstanding loan balance; however, this fee is not deducted from your available loan income. Rather, it accumulates over time and you pay it back once the loan is called overdue and payable. The MIP ensures that if the company that manages your account, commonly called a “loan servicer”, closes the business, the government will step in and ensure that you have ongoing access to your loan funds. In addition, the MIP ensures that you will never owe more than the value of your home when the HECM is due to be reimbursed.
The FHA considers the mortgage insurance premium to be a “fully earned” premium at the time of loan closure and these mortgage insurance premiums are not refundable. NRMLA strongly encourages you to consult with an income tax professional for guidance related to the deductibility of your interest charges related to your reverse mortgage account. How much can a reverse mortgage offer you? Enter your own information and get a quote. When the homeowner moves or dies, the proceeds from the sale of the home go to the lender to repay the principal, interest, mortgage insurance, and reverse mortgage charges.
Look out for contractors who could contact you to get a reverse mortgage to pay for your home repairs. It's not uncommon for scammers, lenders and brokers to use the following tricks to convince people to get a reverse mortgage. Unscrupulous salesmen and home improvement contractors have turned to seniors to help them get reverse mortgages to pay for home improvements, in other words, so they can make money. The counselor should also explain possible alternatives to an HECM, such as government and non-profit programs, or a single-purpose reverse mortgage or property.
If you're concerned about reverse foreclosure, talk to a foreclosure lawyer in your state. With such a potentially lucrative product as a reverse mortgage and a vulnerable population of borrowers who may be cognitively impaired or desperately seeking financial salvation, scams abound. Generally, homeowners over the age of 62, who occupy the property as their primary residence and have 50-55% or more equity in their home will qualify for a reverse mortgage. For information on single-use reverse mortgages to pay property taxes in your area, you can also contact your tax advisor.
In New York, where co-ops are commonplace, state law further prohibits reverse mortgages on co-ops, allowing them only on residences and condominiums of one to four families. As long as you or your spouse (or whoever is on the loan with you) lives in the house and pays property taxes, homeowners insurance, and home maintenance, which I'm sure you do anyway, it really doesn't make any difference at all how much is owed on the reverse mortgage. If you get a reverse mortgage of any kind, you get a loan in which you apply for a loan against the equity of your home. But unlike HECM mortgages, giant reverse mortgages don't have federal insurance (meaning federal insurance won't cover the lender's losses), so they're more expensive.
In addition to the potential for scams targeting seniors, reverse mortgages have some legitimate risks. After the first month of your HECM loan, the capital limit increases each month thereafter at a rate equal to one-twelfth of the then-current mortgage interest rate, plus one-twelfth of the monthly mortgage insurance premium rate. . .