U.S. Department of the Treasury Information Guide Regarding Reverse Mortgage Federal Housing Administration U.S. Department of Housing and Urban Development
Basics about Reverse Mortgages What is a reverse mortgage? A reverse mortgage is a loan secured by your home that lets you receive payments from the lender either over time or all at once based on the value of your home at the time of the loan. As you receive payments, these amounts are added to your loan balance. Interest is charged on the outstanding balance, so even if you do not receive any further payments from your lender, the loan balance continues to increase. This Consumer Advisory on Reverse Mortgages is issued by the Office of the Comptroller of the Currency, U.S. Department of the Treasury Reverse Mortgages: Are they right for you? If you are 62 or older, or about to reach that milestone, you may find yourself considering a reverse mortgage to add to your retirement income or meet health care or other financial needs. This Consumer Advisory, issued by the Office of the Comptroller of the Currency, is designed to help you better understand reverse mortgages. Reverse Mortgages are complex loans and are secured by your home. It is important to understand the terms, risks, and costs before you sign a reverse mortgage contract. Make sure to consider alternatives to reverse mortgages. Who can obtain a reverse mortgage? Generally, to obtain a reverse mortgage, you must be a homeowner at least 62 years old, must use the home as your primary resi dence, and must have either no current mortgage or a mortgage balance low enough that you can pay it off with funds from the reverse mortgage. Are there different types of reverse mortgages? Yes. And the differences can be important. For example most reverse mortgages are made under a Federal Housing Administration (FHA) program. These loans (called Home Equity Conversion Mortgages or HECMs) have government insurance that protects not just the lender, but also the borrower. If the lender becomes
unwilling or unable to make payments due to the borrower, the government steps in to make them. Other reverse mortgages do not have this guarantee. How much can I borrow? That depends on many factors, including your age, the value of your home, and applicable interest rates at the time you obtain the loan and over the course of the loan. Generally, the amount of your loan will be larger the older you are, the more valuable your home is, and the lower that applicable interest rates are. How do I get my payments? Reverse mortgages can be very flexible about this. Depending on the type of loan you get, you can take out the funds in fixed monthly payments that last either for a set period of time or for as long as you stay in the home, as a line of credit that permits you to take out funds as you see fit, in a single lump sum (or a single draw on a line of credit), or in some combination of these options Costs and Benefits of Reverse Mortgages How much will it cost? Like many home loans, reverse mortgages have both interest and fees charged over the life of the loan and up-front costs due at closing. These up-front costs generally can be financed, not paid out-of-pocket at closing but added to your loan balance instead. Reverse mortgages may have relatively low interest rates, but they can still be expensive compared with other home loans in other respects, primarily because of mortgage insurance premiums and other up-front costs. The interest rate on a reverse mortgage may be variable, increasing or de creasing with the prime rate or some other measure of market rates. How do I repay the loan? In a reverse mortgage, you do not make monthly payments of principal and interest to the lender. Instead, interest and fees are added to your loan balance. Unless you make escrow payments to your lender, however, you are still responsible for paying property taxes and insurance when they are due.
When do I have to repay the loan? Generally, you do not need to make an payments until you stop using the home as your primary residence for example, when you sell the home, no longer live in the home, or pass away. The loan then becomes due. Your obligation to the lender will be limited to the lesser of the amount due or the value of the home at the time, unless you or your heirs want to keep the home. To keep the home, you or your heirs would need to pay the full amount you have received, plus all accumulated interest and fees. Can I lose my home before I m ready to move? Yes, under limited circumstances. With a reverse mortgage, you keep title to your home, but you remain responsible for property taxes, insurance, and home repairs. If you fail to pay taxes and insurance or fail to maintain the home, the mortgage may be come due and payable, and you could lose your home through foreclosure. Of course, if your lender requires a monthly escrow payment for property taxes and insurance, that risk can be reduced. Rule of Thumb Keep other options in mind. Other loan products, such as standard mort gages and home equity lines of credit, may make more sense for you, depending on your financial situation and needs. Other financial options from drawing on retirement plans to selling the home should also be considered. In addition, your community may offer home repair or other services to assist you, and you may be eligible for public benefits. Financial advisors or housing counselors can help you find other financial options or community or government pro grams that may meet your needs. A reverse mortgage usually makes more sense the longer you are planning to stay in the home. This is because the high up-front costs make the first years of the loan relatively expensive. For example, a borrower who uses a reverse mortgage for only a couple years can have an annual loan cost several times greater than a similar borrower using the reverse mortgage for a decade or more. For this reason, it is very important to have a realistic understanding of not just your life expectancy but also how long you can afford the expenses related to your home including utilities, property taxes, insurance, maintenance and repairs, and condo fees and how long you are physically able to keep living there. In considering these factors, you should bear in mind that the average HECM borrower remains in the home for only six years after obtaining the reverse mortgage.
Be wary of anyone trying to sell you other products along with a reverse mortgage. Because a reverse mortgage can give you access to a large amount of funds, it can make you a target for aggressive sales pitches for expensive and inappropriate products or services. You should generally steer clear of anyone trying to sell you other products such as annuities, long-term care insurance. Get a Housing Counselor. A reverse mortgage is a complex loan secured by your home. Whether such mortgages make sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified, independent housing counselor in a face-to-face counseling session before making this decision. Housing counselors can help you learn about reverse mortgages, identify and evaluate the available alternatives, and understand the potential consequences of reverse mortgages, including the impact on your taxes, benefits, and heirs. The preceding information is a Consumer Advisory on Reverse Mortgages and is issued by the Office of the Comptroller of the Currency, U.S. Department of the Treasury This following information on Reverse Mortgages is issued by the Federal Housing Administration, U.S. Department of Housing and Urban Development Consumer Fact Sheet for Home Equity Conversion Mortgage (HECM) Reverse Mortgages are becoming popular in America. HUD s Federal Housing Ad ministration (FHA) created one of the first, the Home Equity Conversion mortgage (HECM). A HECM (also known as a reverse mortgage) is a federally-insured loan that enables you to withdraw some of the equity in your home or use the loan proceeds to buy a new primary residence that you will occupy. The HECM is a safe alternative resource that can provide older Americans with greater financial security and independence. Many seniors use it to supplement social security, meet unexpected medical expenses, to make home improvements and more. What are the borrower eligibility requirements? 62 years of age or older Property used as collateral must be the primary residence No delinquencies on any federal debt, suspensions, debarments, or excluded participation from FHA programs Completion of HECM counseling
Why is HECM Counseling required? To educate borrowers about using a HECM Financial implications Alternatives Borrower obligations Costs of obtaining the loan Repayment conditions What costs are associated with getting a HECM? Loan Origination Fee Third party fees (i.e., appraisal, inspection, lender title policy, etc.) FHA Mortgage Insurance Premiums Servicing Fees Interest How much will I receive? Varies loan-by-loan Disbursements are made in equal monthly payments or in amounts defined by the homeowner One-time disbursement at loan closing What are the borrower s obligations after the loan has closed? Occupy the home as a principal residence Make timely payments of their property taxes, Home Owner Association (HOA) fees, ground rents, etc. Maintain homeowner s hazard insurance policy Maintain the property in a condition equal to when the loan was closed Consumer Fact Sheet for HECM Saver Beginning October 4, 2010, homeowners seeking to obtain a FHA Home Equity Conversion Mortgage (HECM) will have the option of reducing their closing costs by selecting HECM Saver as their initial mortgage insurance premium. The HECM Saver differs from the traditional HECM Standard Program in that eligible borrowers 62 and older will be charged significantly lower up front fees. However, the lower upfront fees do result in less money being made avail able to the borrower than is available under HECM Standard. There are no additional eligibility requirements for HECM Saver; homeowners just need to meet existing HECM program requirements. HECM Saver is available for all HECM transaction types and payment plans. Additional information about HECM Saver can be obtained from a HUD-approved HECM Counselor or FHA-approved lender. What is the amount of the initial mortgage insurance premium for HECM Saver? The amount of the initial mortgage insurance premium is 0.01% of the maximum claim amount (lesser of sales price, appraised value, or the current FHA mortgage limit for Reverse Mortgages).
What are the advantages of HECM Saver? The upfront fees of obtaining the loan are significantly reduced. What are the disadvantages of HECM Saver? The amount of money available to the borrower is lower. Can I receive a refund if I refinance from an existing FHA-insured loan (forward or reverse) into a new HECM? No. FHA does not refund the initial mortgage insurance premium for any type of refinance transaction. Homeowners may receive a credit for the amount of initial mortgage insurance premium previously paid on an active FHA-insured HECM loan to reduce the amount due on the new refinance loan. What is the alternative to selecting HECM Saver? Homeowners may select HECM Standard. Homeowners selecting HECM Standard will be required to pay a higher initial mortgage insurance premium (2% of the FHA maximum claim amount) which will increase the amount of money needed to close the HECM transaction. However, the homeowner may borrow a larger amount. The preceding information provided by the Federal Housing Administration, U.S. Department of Housing and Urban Development How much will I receive? The amount that may be received will vary by individual loan. Contact a HUD-approved HECM counselor or FHA-approved lender to discuss your particular financial circumstances and the amount that may be available.
For More Information The National Reverse Mortgage Lenders Association (NRMLA) NRMLA is the national voice and conscience of the Reverse Mortgage industry. They view their responsibility as presenting America s senior population with the best possible financial product and providing them assurance that seniors can borrow with confidence from a NRMLA member. www.reversemortgage.org (Consumer Site) U.S. Department of Housing and Urban Development Home Equity Conversion Mortgages for Seniors: Reverse mortgages are increasing in popularity with seniors who have equity in their homes and want to supplement their income. The only reverse mortgage insured by the U.S. Federal Government is called a Home Equity Conversion Mortgage (HECM), and is only available through an FHA approved lender. www.hud.gov search reverse mortgages Federal Trade Commission (FTC) Reverse Mortgages: Get the Facts Before Cashing in on Your Home s Equity http://www.ftc.gov/bcp/edu/pubs/consumer/ homes/rea13.shtm AARP The American Association of Retired Persons is the United States-based non-governmental organization and interest group, founded in 1958 by Ethel Percy Andrus, PhD, a retired educator from California, and based in Washington, D.C. According to its mission statement, it is a nonprofit, nonpartisan membership organization for people age 50 and over... dedicated to enhancing quality of life for all as we age. www.aarp.org search reverse mortgages National Council on Aging Use Your Home to Stay at Home The National Council on Aging (NCOA) is a nonprofit service and advocacy organization headquartered in Washington, DC. We are a national voice for older Americans and the community organizations that serve them. We bring together nonprofit organizations, businesses, and government to develop creative solutions that improve the lives of all older adults. www.ncoa.org
The Process 1. Call us today to speak with a loan officer. We will review the entire Reverse Mortgage process in detail, however this does not commit you to a Reverse Mortgage. 2. Complete the HUD required Reverse Mortgage counseling. We provide you with a list of counseling centers along with the number to call. 3. Once we receive your counseling certificate from a HUD counselor, we begin the application process. At this time, you will pay the appraisal fee. 4. After we have gathered all the necessary items, we set a date with you to close the loan. 5. After any applicable rescission period, you will receive your loan proceeds. This process is fast and simple, so make your appointment today!