onsum r s ui to v rs ort s Access Cash for Living Expenses r s o l ik om Home Mortgage Bank Prince s Court, Ground Floor Corner Keate & Pembroke Streets Port of Spain,Trinidad,W.I. Tel.(868)625-4972,627-4695 Fax.(868)623-3167 homeloan@tstt.net.tt www.homemortgagett.com Access Additional Funds for Emergencies or Recreational Use Establish a Cash Reserve r s o l ik om
INTRODUCTION The Reverse Mortgage is a home equity loan that allows homeowners to convert some of the equity of their homes into cash, whilst still retaining ownership. It allows you to use your property to receive supplementary income and meet living expenses. The Reverse Mortgage requires the repayment of the loan after you have ceased occupation of the house. Upon sale of the property, migration or death of the homeowner, the full amount becomes due and payable. This is normally repaid from the sale of the property, or the beneficiaries of the property can repay the loan from their personal resources. The amount due on the Reverse Mortgage would be the lower of the outstanding loan balance or the market value of the property. That is, should the amount owed be greater than the value of the property, the individual would never be liable for an amount that exceeds the value of the home. 2
BENEFITS AND USES The borrower retains title ownership of the home. If the home is sold, the loan is repaid and the borrower or beneficiaries receive the leftover home equity. Loans are non-recourse. That is, the amount owed can never exceed the net selling price or value of the home. The loan has no fixed maturity date so payments can be made for life to the borrowers. ELIGIBILITY REQUIREMENTS BORROWER Individuals wishing to acquire a Reverse Mortgage must: Be at least 62 years old and occupy the property as their principal residence. There can be no more than two borrowers on one loan. Own their own home free from all encumbrances. Should there be an outstanding loan on the property, the debt must be paid off to acquire the Reverse Mortgage. Borrowers have immediate access to cash. Provides borrowers with the means to: Renovate and refurbish the home Access additional funds for health emergencies or recreational use Establish a cash reserve for future needs Access cash for living expenses Attend a financial planning session, which will explain the intricacies of the Reverse Mortgage and provide the individual with estimates of their expected responsibilities, such as payment of rates and taxes, fire insurance and property maintenance. PROPERTY The property must be a single-family, one unit dwelling. BORROWERS RESPONSIBILITY: Because the Borrower retains title to the home, he/she is responsible for taxes, repairs and maintenance for the mortgaged property. The Lender obtains title to the home upon the death of the Borrower. However, the loan is usually repaid by funds from the Borrower s estate or from the sale proceeds from the home. LOAN BORROWER PROTECTION The Reverse Mortgage is fully backed by Home Mortgage Bank so you are assured of receiving all payments due to you once you continue to live in the home. BORROWING LIMITS The Principal Limit refers to the amount of cash that can be made available to an individual over the stipulated life of the Reverse Mortgage. Factors that determine the Principal Limit when obtaining a Reverse Mortgage are as follows: Age and number of borrowers Property value 3 4
AGE AND NUMBER OF BORROWERS For a single mortgagor applying for a Reverse Mortgage, his/her age would determine the Principal Limit. HOW ARE THE LOAN PROCEEDS PAID TO ME? There are three payment options used to determine how loan proceeds are paid under a Reverse Mortgage. The longer the life expectancy of the individual, the longer the period of monthly cash advances and interest charged to the loan balance. That is, the younger the borrower, the more payments that are needed to be made, thus resulting in the availability of lower cash limits to the borrower. With a joint mortgage facility the ages of both borrowers would determine the Principal Limit. PROPERTY VALUE The value of the property is another critical factor as the residence is used as collateral for the loan. DETERMINATION OF LOAN BALANCE The loan balance consists of the loan principal, accrued interest and other related costs added to the loan. It is important to note that there is a significant difference between the loan amount and loan balance. The loan amount refers to the amount the individual can borrow (Principal Limit). The loan balance refers to the amount owed which increases over time. As the individual receives more advances interest continues to accrue, thus increasing the amount owed over time. TENURE OPTION With this plan, the borrowers receive equal monthly payments for life, once they occupy the home as their principal residence. This option is better suited for homeowners in need of supplementary monthly income over a long term period to assist with their day-to-day living expenses. LINE OF CREDIT OPTION This option allows the borrower to have access to a revolving line of credit which is equal to their Principal Limit. This allows the borrower to draw down on funds and repay the borrowed amount so that funds may be borrowed again in the future. Here the loan balance consists of the advances drawn on the credit line added to the accrued interest. Advantages include: Accessible credit for future needs. Once the draw down amount has been repaid it can be used again in the future. Cost savings to the borrower as there are no further origination costs when funds are requested in the future. 5 6
MODIFIED TENURE OPTION This alternative represents a combination of the Tenure and Line of Credit options. As the Reverse Mortgage is granted a portion of the funds is separated from the Principal Limit to be used as a line of credit and can be drawn down when needed. The difference would be paid in equal monthly payments to the borrowers for as long as they live and occupy the home as their primary residence. Advantages are: Accessible credit facility Supplementary monthly revenue REPAYMENT SECURITY With each plan repayment is not required until the borrowers no longer occupy the home. However they must ensure: All rates, taxes and property insurance on the mortgaged property are paid Maintenance of the mortgaged property INTEREST RATE Reverse Mortgages granted by Home Mortgage Bank carry a variable interest rate. This means that the rates are subject to change based on economic conditions in the country. Should there be an upward or downward change in the interest rate the loan balance would be influenced accordingly. FEES Fees involved in taking out a Reverse Mortgage include: One time origination fee Closing costs (eg: legal fees) ORIGINATION FEE This is an upfront fee charged to the borrower when the mortgage application is submitted. The current origination fee is 1% of the mortgage amount. OTHER CLOSING COSTS These may include legal fees for the preparation of any legal document or other fees that may be necessary to complete the transaction. All closing costs may be financed in the loan balance. However, once these costs are incurred, the total amount of cash available to the borrower is reduced and interest is accrued on the amount over the term of the loan. WHEN IS THE LOAN REPAID? The Reverse Mortgage must be repaid on the occurrence of the following conditions: The borrower/s no longer occupy the residence as their primary home Upon the sale of the property Upon the death of the last surviving borrower Upon the breach of the mortgage contract (default) CRITERIA FOR DEFAULT PROCEEDINGS The loan would be considered to be in default if any of the following conditions exist: The property is no longer owner-occupied by the borrower/s Lack of maintenance on the property Violation of the terms of the mortgage loan Non payment of rates and taxes and property insurance Some of these fees can be financed in the loan balance. 7 8
If default arises from the non payment of house rates, insurance or failure to make repairs on the property, Home Mortgage Bank has the right to use the available funds under the facility to carry out the repairs and pay taxes and property insurance. If sufficient funds are not available, Home Mortgage Bank would instruct a licensed valuator to prepare a valuation report on the property and issue a demand letter to the borrower. During the tenure of the loan the borrower/s may repay the loan balance through the sale of personal assets or through the liquidation of personal investments. At the time of death, should the loan balance exceed the value of the property, the beneficiaries would only owe up to the value of the property, the Bank would absorb the difference. 9 10