Reverse Mortgage Loans
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Types of REVERSE MORTGAGE Loans
  
HECM Saver: Lower up-front Costs
  
Oct. 4, 2010 With the newly introduced HECM Saver, the up-front mortgage insurance premium required by the Federal Housing Administration (FHA) is significantly reduced as compared to a HECM Standard. As a result, you could save thousands of dollars, depending on your home's value. While the maximum amount of money you can borrow is less than with a HECM Standard, lower costs may make it an attractive option.
   
The HECM Saver option requires an upfront FHA Mortgage Insurance Premium of only .01% of the home’s value, as compared to the 2% requirement for the standard FHA reverse mortgage loan.

Several distinct equity release products that offer the flexibility to customize a reverse mortgage specific to your financial needs and objectives. Loan Advisors will work with you and your advisors to help you assess your individual situation and choose the product that best meets your needs.

 HECM (Home Equity Conversion Mortgage)
This type of loan represents 90% of all Reverse Mortgages!

  • Guaranteed by FHA/HUD
  • Flexible Income Payment Option
  • Growing Line of Credit
  • Maximum Lending Limit ($625,500)

HomeKeeper by Fannie Mae

  • Guaranteed by Fannie Mae
  • No Line of Credit Growth
  • Generally lower closing costs and money available
  • Maximum Lending Limit ($625,500)

Basic Loan Features
Although there are different types of reverse mortgages, all of them are similar in certain ways. Here are the features that most have in common.

Homeownership
With a reverse mortgage, you remain the owner of your home just like when you had a forward mortgage. You are still responsible for paying your property taxes and home-owner insurance and for making property repairs.

When the loan is over, you or your heirs must repay all of your cash advances plus interest. Lenders don't want your house; they want repayment.

Financing Fees
You can use the money you get from a reverse mortgage to pay the various fees that are charged on the loan. This is called "financing" the loan costs. The costs are added to your loan balance, and you pay them back plus interest when the loan is over.

Loan Amounts
The amount of money you can get depends on the specific reverse mortgage program you select. It also depends on the kind of cash advances you choose.

Debt Payoff
Reverse mortgages generally must be "first" mortgages, that is, they must be the primary debt against your home. So if you now owe any money on your property, you generally must either :

  • pay off the old debt with the money you get from a reverse mortgage

  • or pay off the old debt before you get a reverse mortgage

Most reverse mortgage borrowers pay off any home debt with a lump sum advance from their reverse mortgage. Credit cards, car payments and other unsecured debt is not required to be paid off.

Debt Limit
The debt you owe on a reverse mortgage equals all the loan advances you receive (including any you used to finance the loan or to pay off prior debt), plus all the interest that is added to your loan balance. If that amount is less than your home is worth when you pay back the loan, then you (or your estate) keep whatever amount is left over.

You can never owe more than what your home is worth at the time the loan is repaid. The lender may not seek repayment from your income, your other assets, or from your heirs.

(The technical term for this cap on your debt is a "non-recourse limit." It means that the lender does not have legal recourse to anything other than your home's value when seeking repayment of the loan.)

Repayment
All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. (Typically, a "permanent move" means that neither you nor any other co-borrower has lived in your home for one continuous year.)

Reverse mortgage lenders can also require repayment at any time if you:

  • fail to pay your property taxes;

  • fail to maintain and repair your home; or

  • fail to keep your home insured.

These are fairly standard "conditions of default" on any mortgage. On a reverse mortgage, however, lenders generally have the option to pay for these expenses by reducing your loan advances and using the difference to pay these obligations. This is only an option, however, if you have not already used up all your available loan funds.

Cancellation. After closing a reverse mortgage, you have three (3) days to reconsider your decision. If for any reason you decide you do not want the loan, you can cancel it. But you must do this within three business days after closing. "Business days" include Saturdays, but not Sundays or legal public holidays.

If you decide to cancel, you must do it in writing, using the form provided by the lender, or by letter, fax, or telegram. It must be hand delivered, mailed or faxed before midnight of the third business day. You cannot cancel by telephone or in person. It must be written.

 

 

 

 

HECM Standard Reverse Mortgage

 Under the HECM Standard option, the upfront mortgage insurance premium will remain at 2% of the value of the property, or 2% of the maximum FHA loan limit of $625,500, if the property has a value greater than that.

FHA Mortgage Insurance

The FHA insurance provides three guarantees:

  1. The homeowner cannot "outlive" the Reverse Mortgage
  2. The homeowner and heirs will not be liable if the balance of the loan exceeds the value of the home.
  3. The FHA will take over the loan if the lender defaults.

Origination Fee

The origination fee is what the Reverse Mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:

  • 2% of the first $200,000 of property value and 1% of the second $200,000 of property value
  • An absolute maximum of $6,000
  • A floor of $2,500

Title Fees

Title guarantees the homeowner's legal ownership of the property and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:

  • Title insurance (varies by state and with property value)
  • Title settlement
  • Title search/exam
  • Recording
  • Delivery/courier
  • Payoff (if a mortgage is being paid off)
  • Notary
  • Doc prep

Appraisal

The appraisal establishes the legal value of the home. A Reverse Mortgage appraisal must be conducted by an FHA-approved appraiser and follows specific FHA guidelines that require more documentation than a typical appraisal. A typical FHA appraisal costs $350-$550 depending on the state. 

Other Closing Costs

  • Counseling
  • Wire Fee
  • Flood Certification
  • Credit Report

Interest
   
A Reverse Mortgage accrues interest just like a traditional mortgage except that the homeowner is not making payments each month to reduce the loan balance. As a result the loan balance grows until the homeowner permanently moves out of the property or passes away.

About two-thirds of Reverse Mortgage holders have adjustable rate reverse mortgages because the rate is usually lower than a fixed rate. Because the homeowners do not make monthly payments, homeowners are not usually as concerned about possible future change in the interest rate.

Interest Rates and FHA Mortgage Insurance

The interest rate on a Reverse Mortgage has fluctuated between 3% and 5%. The real interest rate is one half of a percentage point above the quoted rate because the total rate includes the FHA's ongoing mortgage insurance premium. For example, if the quoted rate is 4.1%, the rate with insurance is 4.6%.

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