Reverse Mortgage Information

Today was such a great day!

Pricing on HECM reverse mortgages has come down and with it the funds available to senior homeowners has gone up.   

I called one of my clients who has been unsure of whether or not she should complete her reverse mortgage loan, (She should) but with the old pricing she would have had to bring in $600 to get the reverse or take the more expensive "HECM Standard" loan which she did not want. So, she's been putting off the decision to move ahead.

At the new pricing she can use the HECM Saver, and get a few thousand dollars in cash to put away for a rainy day.  Her old mortgage will be paid off and she will no longer have to make a mortgage payment.  Not only that, but the interest rate on this new fixed HECM Saver will be about 1% less than her current 30 year mortgage that she is struggling to make the payments on.

Woo hoo!  She went from scared and sitting on the fence to peace, happiness and confidence that this new HECM Saver Fixed Rate reverse mortgage is exactly the right thing for her to do.

I told her that her "angel" must have been suggesting she hold off for a week or two cause he had a special coming up!

What is the minimum age for a reverse mortgage?

62 is the answer.  In fact, all persons on title must be 62 years of age or older. 

Sometimes this leads to the question, “What if I’m 62 and my spouse is younger, can I just get the reverse in my name?”  Technically it can be done but carries a large risk in my opinion.    What risk you ask?  Basically if the senior borrower passes away the loan becomes due and payable leaving the remaining person with 6 months to a year to figure out how to pay off the loan. I’ll give a more detailed explanation of the risks associated with removing a younger spouse from title just to get a reverse in my next post.

Corona Reverse Mortgage Question - What happens to the reverse mortgage when I die? 

Does the bank get the house?

A reverse mortgage is just that, a mortgage.  When the last borrower passes away, the loan becomes due and payable 6 months from the date of death of the last borrower.  The home itself becomes the property of the “estate”*.  Heirs will have 6 months to decide how they want to repay the loan.  Some will refinance the home, most will sell the home, and others will pay off the loan with available cash.  If the heirs choose to sell the home then the reverse loan will be paid off as a part of the sale escrow/settlement and the “change” proceeds will be distributed according to the instructions.  Pretty much the same as if the homeowner had passed away with a traditional mortgage.  No payments are required on the mortgage by the heirs. 

What if the balance on the loan is higher than the value of the home?  Click here to see my post on just that subject!

* Depending upon how the deceased borrower set up their affairs will determine who has final title to the home.  Some parents leave their home equally to all their children, some to one child, a church, grandchildren.  It is a matter of the borrowers “final affairs”.  If there was no will or trust then the laws of the state will determine who inherits the home.  Always consult with a legal professional.

As always - I appreciate your comments, suggestions and questions.

Trilogy Homes at Glen Ivy is a tranquil resort community for active seniors!  Homeowners must be over 55 years of age, and if they are over 62 they may want to look into the option of financing their new home with an FHA Reverse Mortgage. 

An Example - Bob and Betty Buyer are purchasing a single story home and selling their two story family home.

• Bob is 76 and Betty is 75
• The clients' proceeds on their existing home after all expenses will be approximately $152,000.00
• With $152,000 to put into a new home and a HECM loan the clients have the purchasing power to obtain a home valued at up to $350,000 with no monthly mortgage payments - EVER!

 Here is an overview of the Reverse Mortgage for Purchase program.

• FHA defines "HECM for Purchase" as a real estate purchase where title to the property is transferred to the HECM borrower, which the borrower will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property.

There are 3 Major Benefits To Senior Homebuyers

• Gives homebuyers who are downsizing more purchasing power than if they had to pay all cash
• Designed to allow your seniors to purchase a new principal residence and obtain a Reverse Mortgage within a single transaction by eliminating the need for a second closing.
• Buyers do not have to "qualify" for monthly payments on the new purchase transaction.  A significant detail to senior homebuyers on a fixed income. 

Other Benefits to Senior Homebuyers

• Eliminates Monthly Mortgage Payments
• Borrower Maintains The Title
• Loan Is Non-Recourse
• Remaining Equity Goes To Borrower Or Borrower's Heirs, Not The Bank
• No Pre-Payment Penalty
• FHA-Insured
• Usually No Income Verification Or Credit Score Requirement (If buyer is retaining their former home as rental property there are income requirements) 

* Certain transactions will require "qualification" - ask your Reverse Mortgage Consultant for specific details.

A lower cost option for homeowners 62 or better who may be considering a reverse mortgage:

The HECM Saver 

FHA designed HECM Saver as a second initial mortgage insurance premium (MIP) option for the purpose of lowering upfront loan closing costs, for mortgagors who want to borrow a smaller amount than what would be available with a HECM Standard.

Based upon a $200,000 home value the Upfront MIP on the HECM Saver would be only $20 versus the HECM Standard's Upfront MIP cost of $4000.00, a considerable difference. 

The HECM Saver and the HECM Standard both will have ongoing MIP Premiums at 1.25% of the outstanding principal balance on an annual basis, compounded monthly.  In effect, a bump to the interest rate the homeowner is accruing to the balance.  This is kin to the monthly MIP charged on the forward side, except of course the amount accrues to the loan as there are no required monthly payments on either the Saver or Standard.

The HECM Saver does not loan as much as the HECM Standard, but for many homeowners this is just fine as they have plenty of equity and are not looking to borrow as much anyway.  I've had many clients who asked me, "I don't need to borrow that much - if I take less will the costs go down?"   The HECM Saver is a possibility to meet those needs.

The HECM Saver will be available for as a refinance loan or a reverse for puchase loan.

This new reverse mortgage product is insurable beginning October 4, 2010 however homeowners may not be able to apply for this type of loan right now.  Lenders are still waiting for further instructions from HUD to implement it and also trying to gauge the secondary market to see if there is a demand from investors for these mortgage investments. I think there will be and I'm very excited to learn more about the HECM Saver and how it can become a useful financial tool in the right circumstances.

 As always, I appreciate your comments, questions and concerns. 

Reverse Mortgages here in Norco and the rest of the country will undergo some changes in a few short weeks on October 4, 2010.

An informative and relative post at Reverse Mortgage Daily, yesterday:

Here's the gist of  it: On October 4, 2010 (yep, next month) there will be some changes to all new HECM loans with case numbers assigned after that date.  We've know n about these upcoming changes for some time now and here they come.

• The MIP will increase from a .5% annual premium to 1.25%.  This amount is added monthly to the loan  balance. 
• The principal limits (sort of like Loan To Value ratios) will decrease between 1 and 5% where they are currently.  Use a Reverse Mortgage Calculator to see what you may qualify for.

 On the bright side - If you look at the raise in MIP as effectively an "interest rate" in as much as it accrues to the balance, even at 1.25% MIP rates are lower than they were when I first got into this business and it was benefiting many seniors.  At that time the FHA HECM lending limits were around $212,000.  Now the limit is $625,500, making if very useful for seniors living in higher value areas like Southern California.  It also allows FHA to keep this great product viable and available for senior homeowners and home buyers over the age of 62.

Last year, HUD reduced the principal limits by 10% and I noticed an immediate increase in the number of homeowners I was unable to help.  This is because for the most part seniors use the reverse mortgage to payoff an existing mortgage, eliminating the monthly mortgage payment and effectively increasing their cash flow.  When I have to tell them that they now have to bring funds to the table to get a reverse, many times (not all) I am told.  "Gee, Debbie, if I had $XX,XXX.XX dollars I wouldn't be trying to get a reverse mortgage!" For them, the best option may be to sell.  Others will look for ways to supplement their income. Most will just keep going as they have been, deeper into savings, deeper in credit card debt until....

This is the second time HUD has been forced to reduce the principal limits in the last two years.  Last year HUD reduced the principal limits by 10% which had a large effect on the number of seniors able to utilize a reverse mortgage to payoff their existing traditional mortgage.

According to HUD, loans with a case number assigned prior to October 4th will still be eligible for the previous principal limits.  A mortgagee letter explaining the changes will be published in September.

In addition to these changes, HUD is expected to release a new type of reverse mortgage, called a HECM light.  More to come on that!