Posted on: 19th Jun, 2005 12:36 am
If you're a senior, looking to cash out your home equity without having to worry about monthly payments, a reverse mortgage is what you may need. If you'd like to know how a reverse mortgage can help you, and what it's all about, check out the reverse mortgage information below:
- What is a reverse mortgage?
- How does a reverse mortgage work?
- Reverse Mortgage Costs
- When to pay back reverse mortgage
- What are the advantages of a reverse mortgage?
- Are there disadvantages of a reverse mortgage?
- Is Reverse Mortgage safe?
- How Reverse Mortgages differ from others
What is a reverse mortgage?
A Reverse mortgage (reverse equity mortgages) is a home loan that provides you with a steady flow of tax-free income either in installments or in lump sum. Since the loan provides an easy flow of cash, it is the preferred choice of many seniors in the country.
How does a reverse mortgage work?
It's just the reverse of a traditional mortgage which requires monthly payments. With a reverse mortgage, your debt accumulates as the bank doesn't collect the payments till the loan period ends or you or your heirs sell. Here are 5 things you should be aware of before you apply for a reverse equity mortgage:
- How to get the cash:
You can get the reverse mortgage loan funds in different ways.- The lender or the company can provide you with a single payment.
- You may ask for monthly cash advances.
- You can apply for a line-of-credit that gives you the opportunity to withdraw a required amount of cash whenever you are in need.
- The lender may allow for a combination of monthly cash advances as well as "credit-line account".
- Reverse mortgage limit:
The maximum loan amount offered ranges from $200,160 to $362,790, depending on the county you live in. However under the 2008 New Housing Bill, the loan limit has been raised to $417,000. For high cost housing areas, the limit is further raised to $625,000. However, the loan amount that you will qualify for, depends upon the factors given below:- Age of the youngest borrower
- The appraised value of your home
- The equity built up in your home
- What loan program you choose
- How you want to get the loan funds
- How to qualify for the loan:
Unlike other loan options, there is no minimum income or credit requirement to qualify for a reverse mortgage. However, if you have unpaid debt on your home, it should be paid off before you apply for a reverse mortgage or else paid off as soon as you get the loan proceeds. Check out if you are eligible for reverse mortgages. - Loan types you can apply for:
You'll find a variety of loan products available in the market. They're the FHA-insured Home equity conversion mortgage (HECM), the Home Keeper Mortgage offered by Fannie Mae approved lenders, and others. You need to compare these programs and decide on the one that suits you. Check out more on Reverse Mortgages Comparison. - Reverse mortgage interest rate:
These loans are mostly adjustable rate mortgages that adjust on a monthly, semi-annual, or annual basis. The interest rates are usually based on the 1 year U.S. Treasury (T-Bill) or the LIBOR index. However, you'll also find fixed rate HECMs offered by certain lenders. However, rate changes do not affect the principal you get; rather it affects the amount you owe.
What are the advantages of a reverse mortgage?
Reverse mortgages assisted countless homeowners improve their quality of life upon retirement. These are very flexible financial planning products with limited restrictions attached to them. Key benefits of this offer are listed below-
- No restrictions on the use of money: Money that you receive through a reverse mortgage can be utilized for whatever purposes you want. You can use it for funding the education of a family member, for traveling purposes, for meeting the basic necessities of life or for anything else. You can also park the amount in another account as savings for the rainy days.
- Less risks of default:In a reverse mortgage, there is no chance of losing your home for non-payment. Whereas, in case of a home equity loan, you may lose your home because of non-payment. Again, reverse mortgage lenders don’t have any claim on your other assets and income.
- Federally guaranteed:There are a variety of loan products available in the market. The most widely used reverse mortgage is the federally guaranteed home equity conversion mortgages (HECM). HECMs are managed by the Department of Housing and Urban Affairs. Since these offers are federally backed, you will continue to receive payments even if the reverse mortgage lenders default.
- Tax benefits:Reverse mortgage is treated as a loan. The money that you receive through this route is tax-free. This is regardless of whether you receive the money in monthly basis or in lump sum amount.
- Retains home ownership:As long as you stay in the house, you retain ownership of the house. However, you are responsible for paying for the property taxes, insurance and maintenance.
Are there disadvantages or dangers of reverse mortgages?
There are 3 reverse mortgage pitfalls to watch out for:
- Rising debt and falling equity:
A traditional mortgage requires you to make payments and build up equity. But reverse mortgages reduce your equity because you don't need to make monthly payments, and causes your mortgage debt ratio to increase. Your equity gets lower unless your home value appreciates. Thus, reverse mortgages are often known as "rising debt and falling equity" loans.
Here's an example on "Rising debt and falling equity".
Monthly Loan Amount: $2,000
Yearly Loan Advance: $24,000
Yearly Interest Rate: 8%
Original Home Value: $250,000
Appreciation Rate of Home Value: 5% per annumEnd of Year Principal Amount ($) Total Interest ($) Loan Amount ($) Total Home Value ($) Home Equity ($)
(Total Home Value - Loan Amount)1 24,000 1,052 25,052 262,500 237,448 2 48,000 4,102 52,102 275,625 223,523 3 72,000 9,224 81,224 289,406 208,182 4 96,000 16,495 112,495 303,876 191,381 5 120,000 25,990 145,990 319,070 173,080
As the above calculation shows, even if your home value goes up, it may not be enough to raise your home equity. The rate of appreciation in the home value should be high enough so that even if your loan balance increases, your home equity won't go down easily.
Now, when the appreciation isn't high enough, your equity will reduce, and as a result you may not have a home to leave for your heirs. This is because your heirs will only receive your home when the value of the home is more than what you owe. - Rates and closing costs:
The rates being adjustable can be higher at times thereby raising your interest and hence your debt because you aren't paying monthly. Some reverse mortgages have high closing costs, although under the new housing laws, the costs have been cut down and capped so that older homeowners can afford to get a reverse loan. - Eligibility for Medicaid benefits: The loan proceeds may affect your eligibility to receive Medicaid benefits and Supplemental Social Security income (SSI). However, you can still qualify for Medicare and Social Security Income.
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- HECM - Hud reverse mortgage home loan
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What is a reverse mortgage?
mother 85 owes around 14,000 . house needes lots of repares- ?? she moved to out of state and cut off part D . only plan has donute hole and she needs to pay cash for med. $700.+ per mo.
don't know if the reverse m. good idea or not, i was told she might get enough equity back to pay for meds till able to find other med help? House is couse of med problem cost! then i saw that childeren would be left to pay back mortgage when mom passes and would not be able to do that could house just go back to bank ? Help!!! Please need wisdom.
Thanks
don't know if the reverse m. good idea or not, i was told she might get enough equity back to pay for meds till able to find other med help? House is couse of med problem cost! then i saw that childeren would be left to pay back mortgage when mom passes and would not be able to do that could house just go back to bank ? Help!!! Please need wisdom.
Thanks
Hi
"i saw that childeren would be left to pay back mortgage when mom passes and would not be able to do that could house just go back to bank ?"
A reverse mortgage will surely be a good idea as it will help your mother to pay for the monthly medical expenses. As far as the repayment of the reverse mortgage is concerned, the children will not have to pay it off. After you mother dies or she sells the house, the property will be taken over by the lender and will be sold to satisfy the reverse mortgage balance. If there's any excess money after paying off the loan, it will be given to her children.
"i saw that childeren would be left to pay back mortgage when mom passes and would not be able to do that could house just go back to bank ?"
A reverse mortgage will surely be a good idea as it will help your mother to pay for the monthly medical expenses. As far as the repayment of the reverse mortgage is concerned, the children will not have to pay it off. After you mother dies or she sells the house, the property will be taken over by the lender and will be sold to satisfy the reverse mortgage balance. If there's any excess money after paying off the loan, it will be given to her children.
>>If there's any excess money after paying off the loan, it will be given to her children.
That's not correct. If the bank sold the home, that means the children allowed it to go into foreclosure and the bank keeps everything. If there's equity in the home when the loan is due, and the children want it, they're the ones that need to sell the house. Upon sale, they'll pay the Lender what's owed them and keep the retained equity for themselves.
That's not correct. If the bank sold the home, that means the children allowed it to go into foreclosure and the bank keeps everything. If there's equity in the home when the loan is due, and the children want it, they're the ones that need to sell the house. Upon sale, they'll pay the Lender what's owed them and keep the retained equity for themselves.
>>In other words, will you finance the $100,000 and give me a reverse mortgage for the $150,000 extra?
When the purchase program first became available, the answer was "yes". But HUD revised the Mortgagee Letter and now the answer is "no".
When the purchase program first became available, the answer was "yes". But HUD revised the Mortgagee Letter and now the answer is "no".
>>If we get another type of loan to get her a small house or a new trailer, could we say a month or two later get a reverse mortgage?
Yes, but you'd save money if you purchased it with a Reverse Mortgage. HECM's received purchase capability January 1, 2009.
>>Any stipulations on the time that she has to have lived in that new home?
HUD doesn't have seasoning guidelines (yet), but the Lenders do, and most lenders have 12 months. For several years there weren't any seasoning requirements, but bad guys started flipping homes with Reverse Mortgages, so the Lenders had to impose "investor overlays" and now we have seasoning requirements. However, you situation is different and if you're going to do it that way, get it pre-approved with the Lender first and get their blessing first.
Yes, but you'd save money if you purchased it with a Reverse Mortgage. HECM's received purchase capability January 1, 2009.
>>Any stipulations on the time that she has to have lived in that new home?
HUD doesn't have seasoning guidelines (yet), but the Lenders do, and most lenders have 12 months. For several years there weren't any seasoning requirements, but bad guys started flipping homes with Reverse Mortgages, so the Lenders had to impose "investor overlays" and now we have seasoning requirements. However, you situation is different and if you're going to do it that way, get it pre-approved with the Lender first and get their blessing first.
>>we have a double wide 1974 on 1 arce permanent foundation paid forwe need reverse mortgage
It can't be done. HUD says only manufactured homes with a tag of June 15, 1976, or later is eligible, and nobody is flexible in that area.
It can't be done. HUD says only manufactured homes with a tag of June 15, 1976, or later is eligible, and nobody is flexible in that area.
>>I have also been told that since there is the MIP insurance that the house should be ours free and clear. Is this true?
No. The insurance protects the lender in case the benefits received by the homeowner are greater then the value of the house, and protects the homeowner in case the Lender goes under.
No. The insurance protects the lender in case the benefits received by the homeowner are greater then the value of the house, and protects the homeowner in case the Lender goes under.
>>Is it possible to get a "temporary" reverse mortgage and pay it back within a couple of years?
Yes, but not financially wise (at least with the HECM, the FHA-insured program). The fees are simply too high. 18 months ago you could get a proprietary Reverse Mortgage that didn't have any fees at all, and those programs went away and won't be back for a while.
I've had one homeowner do a HECM for only 6 months, but it was the only option they had left. They would have went under otherwise.
I've helped several homeowners build brand new homes and then I'd take it out with a Reverse Mortgage. They'd get a bridge/construction loan and I'd take it out with a HECM. So that's a potential solution that may work.
Yes, but not financially wise (at least with the HECM, the FHA-insured program). The fees are simply too high. 18 months ago you could get a proprietary Reverse Mortgage that didn't have any fees at all, and those programs went away and won't be back for a while.
I've had one homeowner do a HECM for only 6 months, but it was the only option they had left. They would have went under otherwise.
I've helped several homeowners build brand new homes and then I'd take it out with a Reverse Mortgage. They'd get a bridge/construction loan and I'd take it out with a HECM. So that's a potential solution that may work.
>>she moved to out of state and cut off part D . only plan has donute hole and she needs to pay cash for med. $700.+ per mo.
It sounds like your Mom would be better off with Medicares Advantage program (part C). If she used to have part D, that means she probably has part A and B too, and that can get really expensive, especially if she hasn't purchased Medigap insurance. Part C includes EVERYTHING in parts A, B and D and even Vision and Dental with some programs. www.medicare.gov offers a form you can complete and it'll show you all the Advantage programs being offered, enabling you to select a program that fits Mom best.
A Reverse Mortgage is definately something you should look into for her. Her quality of life will improve if she can increase her cashflow and reduce her medical premiums and expenses.
It sounds like your Mom would be better off with Medicares Advantage program (part C). If she used to have part D, that means she probably has part A and B too, and that can get really expensive, especially if she hasn't purchased Medigap insurance. Part C includes EVERYTHING in parts A, B and D and even Vision and Dental with some programs. www.medicare.gov offers a form you can complete and it'll show you all the Advantage programs being offered, enabling you to select a program that fits Mom best.
A Reverse Mortgage is definately something you should look into for her. Her quality of life will improve if she can increase her cashflow and reduce her medical premiums and expenses.
>>they are thinking of gifting cash to their children and grandchildren from their reverse mortgage funds. At their age they may have to go to a nursing home any time, so if they need medical help, how will they pay; I don't want them to be penalized for having not paid for the Medicaid money. Is gifting from a reverse mortgage handled in a different way compared to any other asset?
Yes, chances are very good the gifts will impact Medicaid benefits, if they need to use Medicaid for Long Term Care purposes. There's a 5 year lookback and the government is very strict about where the money has gone during that period, and your parents will be penalized if they provide a large cash gift to the grandchildren. However, providing a lot of small cash gifts may be okay. First, they should seek the advise of an Estate Planning Attorney that understands Reverse Mortgages. Second, they should research purchasing private Long Term Care insurance. They won't have to worry about Medicaid if they have their own private policies.
Yes, chances are very good the gifts will impact Medicaid benefits, if they need to use Medicaid for Long Term Care purposes. There's a 5 year lookback and the government is very strict about where the money has gone during that period, and your parents will be penalized if they provide a large cash gift to the grandchildren. However, providing a lot of small cash gifts may be okay. First, they should seek the advise of an Estate Planning Attorney that understands Reverse Mortgages. Second, they should research purchasing private Long Term Care insurance. They won't have to worry about Medicaid if they have their own private policies.
>>If my father gets a reverse mortgage will he loose his social security.
No. Social Security isn't impacted by a Reverse Mortgage.
>>I am talking the lump sum kind. He he get's 100,000 let's say does he have to spend it all at once?
No. It's his money to do with as he wishes and it's non-taxable. Lets hope he puts it away in a safe place that'll continue to work for him. Watch out for those Annuity salespeople - they'll be all over your Dad once they find out his cash position. Not to say an Annuity is a bad idea, it's just that the Annuity Salespeople are selling Reverse Mortgage recipients "deferred" annuities instead of "immediate" annuties. They do that because a deferred program pays them 6-15% and the immediate program only pays 1-3%. A SPIA (single premium immediate annuity) behaves very similarly to the monthly payment program provided by a Reverse Mortgage. I always ask my clients to read the most current edition of Annuties for Dummies if they're considering using the proceeds to purchase an annuity. And stay away from all salespeople until you've finished the book and are comfortable with the subject.
No. Social Security isn't impacted by a Reverse Mortgage.
>>I am talking the lump sum kind. He he get's 100,000 let's say does he have to spend it all at once?
No. It's his money to do with as he wishes and it's non-taxable. Lets hope he puts it away in a safe place that'll continue to work for him. Watch out for those Annuity salespeople - they'll be all over your Dad once they find out his cash position. Not to say an Annuity is a bad idea, it's just that the Annuity Salespeople are selling Reverse Mortgage recipients "deferred" annuities instead of "immediate" annuties. They do that because a deferred program pays them 6-15% and the immediate program only pays 1-3%. A SPIA (single premium immediate annuity) behaves very similarly to the monthly payment program provided by a Reverse Mortgage. I always ask my clients to read the most current edition of Annuties for Dummies if they're considering using the proceeds to purchase an annuity. And stay away from all salespeople until you've finished the book and are comfortable with the subject.
>>my parents are in the process of going trough with reverse mortgage but were told they don't get any money from the deal, why is that?
Because they don't have enough equity in their property. If they're still in the process and the loan hasn't funded, find out if they're getting a variable interest rate program or fixed interest rate program. If it's the variable program, chances are very good they'll get some cash back if they switched to the fixed interest rate program (the interest rate is 5.56% today). I've switched all my clients over to it because they receive significantly more cash.
Because they don't have enough equity in their property. If they're still in the process and the loan hasn't funded, find out if they're getting a variable interest rate program or fixed interest rate program. If it's the variable program, chances are very good they'll get some cash back if they switched to the fixed interest rate program (the interest rate is 5.56% today). I've switched all my clients over to it because they receive significantly more cash.
>>What if I do not have much equity. Home is worth aprox $225 and we owe $195,000. What if we do not want to take any cash out, simply get the reverse mortgage and make small payments. Is this possible?
Yes, when a Reverse Mortgage is combined with a short-refinance. The Reverse Mortgage will pay off a large portion of the existing lien, and the existing lienholder would be in 3rd position (HUD sits in the 2nd position).
Your lienholder would have to agree with it though, and that's not easy. I'm doing two like that right now and they're taking a long time - I'd prefer not to do anymore.
Alternatively, you could contribute the shortfall yourself. 50% of my clients have shortfalls and they're contributing the amount they're short, so they can end their monthly mortgage payments.
Yes, when a Reverse Mortgage is combined with a short-refinance. The Reverse Mortgage will pay off a large portion of the existing lien, and the existing lienholder would be in 3rd position (HUD sits in the 2nd position).
Your lienholder would have to agree with it though, and that's not easy. I'm doing two like that right now and they're taking a long time - I'd prefer not to do anymore.
Alternatively, you could contribute the shortfall yourself. 50% of my clients have shortfalls and they're contributing the amount they're short, so they can end their monthly mortgage payments.
>>how much does your house have to be to quality for a reverse mortgage
When you're in your 60's, you'll receive credit for approximately 50% of the value of your home. So you'd receive $50,000.00 from the Reverse Mortgage if your home is worth $100,000.00. The number increases as you grow older. I've done 3 Reverse Mortgage for homeowners in their 90's and all 3 times the number was the same - they converted 84% of the value of their home into cash.
When you're in your 60's, you'll receive credit for approximately 50% of the value of your home. So you'd receive $50,000.00 from the Reverse Mortgage if your home is worth $100,000.00. The number increases as you grow older. I've done 3 Reverse Mortgage for homeowners in their 90's and all 3 times the number was the same - they converted 84% of the value of their home into cash.
I took a mortgage on my condo 10 years ago and therefore have little equity. I am 66 years of age. Can i get a reverse mortgage. My mortgage is for 30 years