Reverse Mortgage Solutions For Seniors

A reverse mortgage is a unique loan. These are used to convert a percentage of home equity into available cash. Reverse mortgage solutions can assist senior homeowners 62 years of age or older, in providing tax-free cash flow. This is a means to financial independence and the ability to age longer in their home for the seniors. Reverse mortgage funds are commonly used for one or more of the following:

Supplement a portion of daily living costs
Debt elimination to reduce unaffordable monthly living costs
Pay for home care costs
Cover costs of home repairs and structural adaptations
Keep funds available for emergencies
Access to credit when other forms of credit are unavailable
Work as an added option to a poorly performing financial portfolio

Reverse mortgage solutions could be right for you.

How do Reverse Mortgages Work?

Unlike a traditional home loan, in a reverse mortgage, the lender pays you. You are still legally required to pay your property taxes, homeowner’s insurance. Failure to do so can potentially result in the risk of foreclosure. The amount you receive in your reverse mortgage can vary based on how old you are. The older you are, the more home equity you can pull out. There are two kinds of reverse mortgages.

Fixed-rate reverse mortgages

This type of reverse mortgage consists of a one-time lump sum payment. A fixed-rate eliminates the uncertainty of a variable rate. This means that you’ll know the interest rate for the entire lifespan of the loan. Fixed-rate reverse mortgage solutions are mostly a good choice given that you know what your interest rate will be.

2. Adjustables have five payment options:

On the adjustable rate, borrowers can choose to take only a portion of their funds and then only accrue interest on the funds that they needed initially.

Tenure: Set monthly payments so long as you or your eligible spouse remain in the home
Term: Set monthly payments for a fixed period
Line of credit: Unspecified payments when you need them until you’ve exhausted your funds
Modified tenure: A line of credit and set monthly payments for as long as you or your eligible spouse live in the home
Modified term: A line of credit and set monthly payments for a fixed period of your choosing

(Source: NerdWallet)

Qualifying for Reverse Mortgage Solutions

Age and residency is the fundamental qualifying requirement for reverse mortgage solutions. Also, borrowers go through a financial assessment with their lender. They must also acquire the FHA required HECM counseling certificate. ACCC is a Massachusetts and HUD-approved provider of the counseling and certificate.

Advantages & Disadvantages of Reverse Mortgage Solutions

The biggest advantages of reverse mortgages are that there are no creditworthiness or income requirements. Instead, you receive monthly payments, a lump sum payout, or a line of credit.

Money from a reverse mortgage can provide seniors with the financial security they need. It can also enable them to enjoy their retirement years while allowing them to remain in their home.

The potential downside to reverse mortgage solutions include the following:

The fees cost thousands of dollars
The loan reduces your equity in your home
You could lose your home if you don’t pay property taxes and insurance

How People Use Reverse Mortgage Solutions:

Get cash out or debt assistance:

No monthly payments are due for as long as the homeowner lives in the home
Pays off existing mortgages on the home
Credit score and income are not considered
Proceeds are not taxable

Offers security:

Allows the homeowner to stay in the home permanently
With minimal requirements, the lender can never take your home
No change to the title – lender receives only a mortgage lien
The extra money may help you to maintain your independence and security

You have control:

You decide how much equity you will use or leave to your heirs
You control how much, or how little, the money you take out of your equity
Leave the vast majority or very little of your equity
Flexible terms for receiving payments are available
Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off

Fair and safe way to access your equity:

A government designed, highly regulated, and extensively disclosed mortgage program
Independent counseling is always required before the loan process is complete
The lender is repaid only what it is owed
Can’t get “upside down”, so the heirs will never owe more than the home is worth.
The interest rate is generally lower than traditional mortgages and home equity loans
Conservative lending limits generally prevent you from using all of your home equity

Reverse Mortage Terms that are Useful:

If you are considering reverse mortgage solutions it is good to understand some terms associated with it. The jargon can easily mislead you. Here are some important terms that are useful.

Acceleration clause -The part of the contract that says when a loan may be declared due and payable
Adjustable-Rate – An interest rate that changes, based on changes in a published market-rate index
Appraisal – An estimate of how much a house would sell for if it were sold; also called its market value
Appreciation – An increase in a home’s value
Area Agency on Aging (AAA) – A local or regional nonprofit organization that provides information on services and programs for older adults
Cap – A limit on the amount an adjustable interest rate may go up or down during a specified period
Closing – A meeting where documents are signed to “close the deal” on a mortgage; the time a mortgage begins
CMT Rate – The Constant Maturity Treasury rate, used as an interest rate index in the HECM program
Condemnation – A court action saying a property is unfit for use: also, the government taking private property to use for the public by the right of eminent domain
Creditline – A credit account that lets a borrower decide when to take money out and also how much to take out; also known as a “line-of-credit” or “credit line.”
Current Interest Rate – In the HECM program, the interest rate currently being charged on a loan, which equals one of the HUD-approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) plus a margin
Deferred Payment Loans (DPLs) – Reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments
Depreciation – A decrease in the value of a home
Eminent Domain – The right of a government to take private property for public use; for example, taking private land to build a highway
Expected Interest Rate – In the HECM program, the interest rate used to determine a borrower’s loan advance amounts; it equals either the 10-year CMT or the 10-year LIBOR rate plus a margin (see below)
Fannie Mae – A private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
Federal Housing Administration (FHA) – The part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans
Federally Insured Reverse Mortgage – A reverse mortgage guaranteed by the federal government so you will always get what the loan promises; also, a Home Equity Conversion Mortgage (HECM)
Fixed Monthly Loan Advances – payments of the same amount that are made to a borrower each month
Home Equity – The value of a home, subtracting any money owed on it
Home Equity Conversion – Turning home equity into cash without having to leave your home or make regular loan repayments
Home Equity Conversion Mortgage (HECM) – The only reverse mortgage program insured by the Federal Housing Administration, a federal government agency
Home Value Limit – In the HECM program, the largest home value that can be used to determine a borrower’s loan advances
Initial Interest Rate – In the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals one of the HUD-approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) plus a margin
Leftover Equity – The sale price of the home minus the total amount owed on it and the cost of selling it; the amount the homeowner or heirs get when the house is sold.
LIBOR – The London Interbank Offered Rate, used as an interest rate index in the HECM program
Loan Advances – payments made to a borrower, or another party on behalf of a borrower
Loan Balance – The amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.
Lump-Sum – A single loan advance at closing
Margin – In the HECM program, the amount added to an interest rate index to determine the initial, current, and expected interest rates
Maturity – When a loan must be repaid; when it becomes “due and payable”
Model Specifications – rules recommended by AARP for analyzing and comparing reverse mortgages
Mortgage – a legal document making a home available to a lender to repay a debt
Non-Recourse Mortgage – A home loan in which the borrower generally cannot owe more than the home’s value at the time the loan is repaid
Origination – The process of setting up a mortgage, including preparing documents
Property Tax Deferral (PTD) – Reverse mortgages that pay annual property taxes; usually offered by state or local governments
Proprietary Reverse Mortgage – A reverse mortgage product owned by a private company
Reverse Mortgage – A home loan that gives cash advances to a homeowner, requires no repayment until a future time and is capped by the value of the home when the loan is repaid
Right of Recission – A borrower’s right to cancel a home loan within three business days of the closing
Servicing – Administering a loan after closing, such as maintaining loan records and sending statements
Supplemental Security Income (SSI) – A federal monthly income program for low-income persons who are aged 65+, blind, or disabled
Tenure Advances – Fixed monthly loan advances for as long as a borrower lives in a home
Term Advances – Fixed monthly loan advances for a specific period
Total Annual Loan Cost (TALC) Rate – The projected annual average cost of a reverse mortgage including all itemized costs

If you are seeking assistance with reverse mortgage solutions speak with a housing counselor at ACCC today. Call 800-769-3571. If you are struggling with debt, sign up for a free credit counseling session today.