Reverse Mortgage Information

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Cerritos Reverse Mortgage Question - What’s the Loan To Value on a Reverse Mortgage?

Sunset CruiseCerritos Reverse Mortgage Question - What’s the Loan To Value on a Reverse Mortgage?

I get this question all the time.  I know that most folks are hoping to hear a number from me like 60%, 80% even 100% of loan value, but that’s just not the way it works.

The loan amount (or principal limit) on a reverse mortgage is based upon a formula provided by HUD which factors in three elements:  AGE, HOME VALUE & EXPECTED RATE.

AGE - The age of the youngest borrower is used in the formula as a factor.  All borrowers must be over 62, but an older borrower will qualify for a higher loan amount than a younger borrower.

The reasoning for this is based upon life expectancy.  A younger borrower needs a bigger cushion of equityto allow for the eventual repayment of the loan.

HOME VALUE - The higher the loan value, the higher the loan amount up to and including a maximum home value of $625,500.  This doesn’t mean if your home is worth more you can’t get a reverse mortgage.  It just means that if you are getting a HECM the calculations will be done as if your homes value was $625,500.  If your home is worth considerably more than that you may want to research a Jumbo Reverse Mortgage which offers many of the same features and protections of the HECM.

EXPECTED RATE - Not the interest rate on the loan itself, the Expected Rate is just that, what the borrower can “expect” the interest rate to average.  Easy to figure on the fixed rate reverse as it matches the interest rate on the loan. It’s a bit more complex on the adjustable. The expected rate for an Adjustable HECM is figured on the 10 Year Libor Swap and the Interest on the loan is figured on the 1 Month Libor index.

I hope that you found this information helpful!  Here’s how to get your own Reverse Mortgage Information Kit.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 28 2012 04:57PM

Irvine Reverse Mortgage Story

Dalmation DivaSavvy Senior Uses Reverse Mortgage

I was fortunate to recently work with a senior who was very strategic and smart about using her home equity.  This 82 year old was as sharp as they come, highly educated and in the financial field.  She needed to access $300,000 for a short period of time (less than a year) and didn’t want to withdraw funds from retirement accounts, IRA’s, CD’s and the like.  So she looked into the new HECM SAVER.  

Things she considered:  
  1. Upfront Fees - Much lower on the SAVER
  2. Interest Rate - Lower on the Adjustable
  3. Available Funds - SAVER provided plenty for her needs and using the ARM allowed her to only access the amount she needed.

Because she lived in a high value home worth over $800,000, she was able to qualify for $344K in funds with zero origination fees, zero upfront Mortgage Insurance Premium.  In about six months she will repay the reverse mortgage down to a very small balance to keep the equity line available should she ever need access to it.  (No prepayment penalties on a HECM Reverse Mortgage)  
Here is a snapshot of what she did.

  • $800,000 Home Value
  • $344,000 Appx Available Loan based upon Age, Interest, Lending Limit
  • $     2,400 Closing Costs
  • $       0 Payoff Current Mortgage
  • $341,600 Available Loan Proceeds
  • $300,000 Lump Sum Disbursement to her Checking Account
  • $  41,000 Line of Credit

In six months, when she is ready to repay the loan, I advised her to just pay the loan down to a very small balance. (If she completely pays it off that will close the loan) Since the loan is an “Open-Ended” loan if she just pays it down her line of credit will correspondingly increase.  That increased line of credit can be used in the future for unexpected financial needs that may come up (Medical Expenses, In Home Care, Other Needs)... or she may never need it.  The carrying costs on that paid down loan would be very small. In my personal opinion this is a great example of a strategic use of of an HECM SAVER Adjustable by a savvy Senior!

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • November 30 2011 10:56PM

Anaheim Reverse Mortgage Question - Spouse Too Young For A Reverse

My spouse is not 62 years old yet - can I get a reverse mortgage?

That is an important question.  Technically, if your spouse is willing to go off of title you could get a reverse mortgage, but it is rarely, if ever a good idea.

Why? The answer is simple.  When the borrower on a reverse mortgage no longer lives in the home due to death, illness or sale, the loan becomes due and payable.  As the elder spouse if you should die first, your partner would then have to figure out a way to payoff the loan.  How would he or she handle that obligation?  Would they have a large inheritance from you that would be enough to payoff the loan or would they be facing foreclosure and eviction. That’s the dilemna you could be placing them in if you chose to proceed as the sole borrower and asked them to deed their interest in the property to you.  I don’t think that is ever a good idea even if it means more money now - and I recommend you talk with a knowledgeable, expert financial advisor or attorney.  When a borrower is married, both spouses may be required to receive HECM Counseling even if one of them is currently not on title or planning to go off of title.Caution

It is always imperative that you understand the obligations and terms of any real estate loan that you wish to become obligated to.  Don’t be shy about asking hard questions and make sure you understand your responsibilities completely. Don't be rushed, and deal with a professional, ethical reverse mortgage professional.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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8 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • November 13 2011 05:54AM

Huntington Beach Reverse Mortgage Question - My Parents Have a Reverse Mortgage ...?

I had two phone calls today from family members of reverse mortgaged senior homeowners.  One found me through my blog here and the other from a mutual business acquaintance. These two calls have me writing today about some things that borrowers and their families should know.

First

I know you don’t tell your parents everything and guess what?  They don’t tell you everything either.  But I think it ‘s a good idea for someone that the senior knows and trusts to understand the reason the senior has taken the reverse mortgage and what happens when the loan comes due.  The house belongs to the homeowners, not the kids, but when mom and dad pass away, it can be confusing and frustrating for the heirs if they have no idea what happened and are not prepared.

DeedIf they already have a reverse mortgage, they should not “deed” someone else onto title with them (like one of the kids). Technically it can be done - but it could be considered a default action on the reverse mortgage causing the loan to become due and payable.

Not to mention,  you could really mess up title to the property. Preparing a deed is serious business, not one that should be done lightly.  You should contact a real estate attorney to review the terms and condition of any liens or agreements currently affecting the property, to review and counsel you on the tax and estate ramifications of being added on title and to prepare the deed properly.

Second

If your parents have a reverse mortgage ask them if they are both on the loan.  If not you need to have a plan because once the last remaining “borrower” passes away, the loan will become due and payable, will the younger spouse have the funds to repay the loan?  Perhaps they have a plan already in place, maybe she has a large life insurance policy on the old guy.  That would be great.

Sometimes the younger spouse will have gone “off of title” in order for the older spouse to get a higher loan amount. In the situation I came across today, they did just that and if they hadn’t they would not have gotten enough money from the reverse to payoff their subprime, adjustable, negatively amortizing loan that they couldn’t afford.  It would have been worth it for the family and everyone’s peace of mind to come up with another solution at the time they were taking the reverse mortgage.  

Possible alternative solutions:

1.  Instead of taking out a reverse - sell the home and move to a more affordable apartment. The market was much better then and they could have gotten a lot more on their home.

2.  If the children wanted to keep the home in the family,  perhaps they could have purchased it from the parents and then rented it back to them.

3. Take the reverse in both spouses names since the younger spouse was over 62 and when the loan proceeds were not sufficient to payoff the existing mortgage - the family members could have gifted the shortage amount to the senior couple.  This way either spouse could have remained in the home without the loan becoming due and payable at the death of the other.


I think reverse mortgages are a wonderful financial tool for seniors who want to age in place in a suitable home. I don’t think they are for everyone, but I do think everyone should know and understand them.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • October 11 2011 10:31PM

SSI and Reverse Mortgages


In my opinion, and from casual conversations with personell at Social Security and in the reverse mortgage industry, as long as you spend the loan proceeds in the month you receive them, the funds will not be counted as a resource.   

I always recommend that the homeowner consult with their SSI representative at Social Security and I would caution the homeowner to only take their reverse mortgage proceeds in the form of a line of credit,  monthly tenure payments, or small term payments - and to be sure that they will spend those funds in the month they are received. I also give my clients a copy of this booklet about SSI and print out the linked webpage here, for them to show to their SSI representative.

It would make perfect sense for an older homeowner on SSI to use a reverse mortgage line of credit to access funds twice a year to pay for the property taxes and once a year to pay for the homeowners insurance and occasionally for the large unexpected expenses that come up.   Regular maintenace items and home improvements geared toward helping seniors to “Age In Place” would be prudent expenses to pay for with a HECM Line of Credit.  

Here is a link to an article from the California Advocates for Nursing Care Reform regarding reverse mortgages and SSI.

Thank you for taking the time to read this article and I look forward to your comments and feedback.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • October 03 2011 11:04PM

Using a Reverse Mortgage to Supplement Income

Just closed a reverse mortgage loan for a homeowner here in Corona for a healthy, vibrant  and young looking widow who owned her home free and clear. She lives in a beautiful single story newer home in Trilogy, a gated 55+ resort community.  Her beautiful home was designed for “aging in place”.  My clients monthly expenses were digging into her savings to the tune of about $700 each month and she could see her nest egg shrinking away. It would be completely gone in under 5 years!  The current low interest rates weren’t helping either.  She was sceptical at first about getting a reverse mortgage having heard some of the common misconceptions, but was interested to see what I had to say about it.  


After I reviewd the new HECM Saver reverse mortgage with her, she saw that not only was the loan very inexpensive, but that she could preserve her savings (an asset that would grow) and instead, start tapping into her home (an asset that recently hasn’t done so well).  Her closing costs were less than $2,000, and she will be recieving a $750.00 tax free loan disbursement every month for the rest of her life (as long as she lives in the home.)  The beauty of this is that she is only borrowing $750.00 per month instead of the entire amount she qualifies for, preserving her home equity far better than if she had taken a lump sum from the reverse mortgage.

Her son was very supportive of her decision to get a reverse mortgage and understands that when he inherits the home, he will have 6 months (possibly even a year) to payoff the reverse mortgage. He says he will just sell the home and keep the change. Since my client is only taking $750.00 per month it is very unlikely that she will ever be “underwater” on her reverse mortgage and should pass on some equity dollars as well as her savings to her son.  In the meantime, he does not have to worry about his mother running out of money and can better plan for his own retirement.

I love my job!

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • September 29 2011 12:08AM

Water & Seniors

Glass of Water

 

 

This was a VERY informative article in the Corona Senior Center July August 2011Newsletter.  Worth reposting and passing around!!  I know it hit home for me.... I need to drink more water, and I don't recognize my thirst as easily....interesting.  Dang, aging is not for the faint of heart, that's for sure.

http://www.ci.corona.ca.us/CityOfCorona/media/Media/Parks/Images/Newsletter-july---August-2011.pdf

WATER & SENIOR CITIZENS

As we age, the balance between our need for water and our thirst for water shifts. 

In fact, the less water an older person drinks, the less thirsty they become, leaving 

them open to the risk of serious dehydration and other complications.

Further, confusion over the difference between hunger and thirst intensifies over the 

years, making it all the more important to conscientiously drink adequate amounts 

of water throughout the day. At the very minimum, one should consume one cup of 

water for every 20 pounds of body weight daily, that's around 6-8 glasses for the 

average person.

Exercise and warm weather both call for additional water intake to replace fluids lost 

through excessive perspiration. So, all those senior citizens who head south for retirement will need to increase water intake! Increased fiber intake among seniors, 

which is usually recommended to aid with constipation and other health concerns, 

also increases the need for water.

The human body is at least 50% water, of which 2-3 quarts are lost on a daily basis. Even bones are over 20% water! Aside from replenishing what is lost in order to 

hydrate the blood and tissues, water also lubricates joints, regulates temperature, 

and moistens the lungs to allow for breathing. Inadequate water intake over time 

prevents these processes from occurring, leading to arthritis, sore muscles, heavy 

breathing, and a higher body temperature. This means that not drinking enough 

water over time can result in more severe effects at an older age, which means preventable problems during what should be the golden years.

Senior citizens are at particular risk for dehydration because their kidney function 

has diminished to some degree. Symptoms of dehydration include confusion, drowsiness, labored speech, dry mouth, and sunken eyeballs. Side effects for seniors who

do not drink enough water, however, extend far beyond dehydration. Even shortterm water deprivation has been known to cause chronic pain. Over time, lack of 

water causes loss of muscle tone, excess weight gain, slow metabolism, increased 

toxicity, and even organ failure. Other negative effects include arthritis, dry skin, 

migraines, hypertension, digestive complications, and persistent constipation.

In order to maintain health, the kidneys must excrete a minimum of ten ounces of 

waste per day. When water is not available, there is nothing present in which to dissolve the body's waste products for expulsion. As a result, they build up within the 

body, leading to kidney stones, while putting additional strain on the kidneys to find 

adequate liquid with which to expel toxins.

Considering the abundance of water in our daily lifestyles, the fact that most senior 

citizens are consistently dehydrated to some degree is alarming. All foods are partly 

composed of water; fruits and vegetables are over 75% H2O, and even bread is 

more than 30% water. Yet with the abundance of water in their diet, the average 

senior citizen still requires over two-and-a-half quarts of pure water each and every 

day to maintain good health.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • August 30 2011 12:52PM

Reverse Mortgage Costs in Southern California

Like any loan you obtain on your home a reverse mortgage will have costs.  You can break the costs down into two general categories.  First are one-time upfront fees and second are ongoing costs. Also, it’s very important to recognize that fees are different from state to state and even county by county.One time, upfront fees are almost always financed into the loan and are not an “out of pocket expenses”. In the reverse mortgage world though there are two exceptions.

CheckFirst, is  “HECM Counseling”. All borrowers must complete HECM Counseling prior to applying for a reverse mortgage and there is a fee for this.  You can expect to pay between $90 and $125 for the counseling.  Many agencies will allow you to have the fee paid from the loan proceeds, and they all will waive the fee in the event of a true financial hardship.   

The second upfront fee is usually an “Appraisal Deposit”.  The company I work for asks for an upfront $325 at time of application.  So, the counseling and the appraisal deposit would be two “out of pocket” expenses.

Other closing costs are:
Initial Premium for FHA Mortgage Insurance.  Depending upon which reverse mortgage loan you choose, SAVER or STANDARD the fee will be .01% of the lesser of home value or lending limit for the SAVER or 2% of the lesser of the home value or lending limit.  That’s a huge difference.  If you can get by with the SAVER, I recommend it!

Lender Origination Charge - lenders maximum origination fee is regulated at 2% of the home value up to $200,000 and then 1% of additional value beyond that, capped at a maximum origination fee of $6,000.00  Remember the maximum fee is regulated, but lenders can (and do) charge less!

Some states have additional fees, like Mortgage Taxes - but in Southern California you can bet on the following:
  • Escrow (Settlement) Fees
  • Title Insurance
  • County Recording Fees
  • Appraisal Fee (less any credit for prepaid deposit)
  • Attorney Trust Review
  • Notary Fees.
  • 3rd Party Document Preparation
(these are the most common & what I always quote~but there could be others)

CashOn a presentation August 19, 2011,  I quoted to a client with a home valued at $250,000, fees equal to $3,624.56 for the HECM Saver and $9.599.56 for the HECM Standard.

According to my favorite notary, there are many, many lenders still charging the maximum allowable fees including monthly service fees on reverse mortgages, so be smart & shop around.

Ongoing costs relating to a reverse mortgage (and many other mortgages) are the interest,  servicing fees, and mortgage insurance.

Interest on a reverse mortgage may be fixed or adjustable and again, may vary slightly from lender to lender.

Monthly service fees are an allowable charge of up to $35 per month on HECM loans although in today’s market, most (but not all) lenders are waiving this charge...so again, compare! Having this charge on your reverse mortgage also lowers the amount of funds you can access.  (One of the reasons that I personally think now is a great time to get your reverse if it is something you are planning to do).

Finally there is the ongoing FHA Mortgage Insurance Premium on any HECM loan.  This ongoing cost runs at 1.25% annual rate, calculated & charged monthly based upon the current loan amount. Think:  loan balance multiplied by .0125 divided by 12.

Puppy and cash
This post got a little longer than I anticipated and if you made it this far, thank you.  Please let me know if it was helpful to you.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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4 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • August 26 2011 11:51PM

Riverside Reverse Mortgages

Question Mark

The Most Common Questions



FHA's Reverse Mortgage Program, the Home Equity Conversion Mortgage (aka HECM’s) really are a safe, secure loan. In the course of my business I often run across some common misconceptions.  I’d like to take this opportunity to educate the reader about some of the most common questions and myths about this loan.


  • How much can I borrow?  Loan amounts are determined by three factors:
    1. Age of the youngest borrower (the older you are the more you can borrow)
    2. Home value (the higher the home value, the more you can borrow with a cap on calculations at $625,500)
    3. Current interest rates.
  • Will the bank own my home?   No. You remain the owner of your home and can stay as long as you wish, as long as you pay property taxes, keep the home insured and maintain the home.  When your home is sold, the reverse mortgage is repaid (along with accrued interest and anyfees) and any remaining equity goes to you or your heirs.
  • Can I qualify for a reverse mortgage if I already have a home loan (or two)? Absolutely, IF you qualify for enough reverse mortgage funds to pay off your existing mortgage(s) or are willing to provide any shortage.  I have had homeowners willing and able to bring funds to closing in order to obtain the benefit of no more mortgage payments!  Bye bye house payment!
  • Will my income or credit score affect my eligibility for a reverse mortgage? Not really.  Because you don't make monthly payments on a reverse, your income and credit score are NOT required. HOWEVER, you must not have a recent foreclosure or any defaulted federal debts or have a non-discharged bankruptcy.
  • What if I outlive the Reverse Mortgage? Not to worry, you cannot outlive a reverse mortgage.  The actual due date is 150 years from the date of the youngest borrower OR when the last remaining borrower no longer lives permanently in the home. No matter if you run out of equity, use all the available RM funds, or become “underwater” on the debt, owing more than value.  Your obligation remains the same - Live in the home, maintain the home, keep the property taxes and insurance current.
HECM Reverse mortgage are a safe, secure FHA Insured mortgage that allows a senior to tap into their home equity without the burden of monthly mortgage payments, ever. The loan proceeds may be taken as lump sum, tenure payments, line of credit, term payments or any combination. Fixed rate HECM loans are available, but only have the lump sum disbursment option.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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6 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • August 23 2011 08:55PM

Riverside Reverse Mortgage Story

DivaBob & Sally have been married for over 70 years!  88 & 94, and incredibly young for their age.They had their home paid off, but a few years ago they took out a loan on the house in order to go into business with one of their grown children.  Bob, in his 80’s, still wasn’t ready to retire!  Enter the recession.  Boo, hiss!  The hopes and dreams for the new business crashed and Bob & Sally found that maintaining their new mortgage payments put quite a strain on their finances, depleting their savings, stressing their lives and   affecting their health.

They went through the mortgage modification process to reduce their monthly home payments and during that process one of the professionals they ran across asked them if they had ever heard of reverse mortgages.  They had not.  To make a long story short, they were referred to me and after meeting with them and their adult children (their kids are old enough for a reverse mortgage), they applied for, were approved and signed their reverse mortgage closing documents.   

I received a call from their grown daughter who was in tears because the financial relief provided by the reverse mortgage has changed their lives!  No more monthly house payment,  $6500 in cash to pay off a vehicle & do some home improvements AND a line of credit of over $70,000 to use for emergencies, pay the property taxes and provide peace of mind.  The family is happy, everyone feels secure and I feel so lucky to have been given the opportunity to help another family. Don't you just love happy endings?

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • August 16 2011 10:45PM