Reverse Mortgages
With an aging population, limited retirement savings and home equity at an all time high, now is a great time to look into this unique lending program.
Sustainable long-term retirement
Reverse Mortgages are a great financial resource that has enabled seniors age 62 and over to use their home equity to sustain long term retirement while maintaining residence in their home. The program began in 1988 as part of the Housing and Community Development Act. Since this time, the program has undergone many changes. Most of these changes are designed to protect the consumer and the overall health of the Mortgage Insurance Fund from FHA.
Here are a few of these recent changes that bring increased safety and security to the HECM (Home Equity Conversion Mortgage) program:
1. Non-borrowing spouse: As of today, if you’re married, both individuals need to be accounted for in the underwriting decision of a reverse mortgage. That was not the case prior to 2015.
2. Income and credit underwriting: This will now minimize tax and insurance defaults and help to ensure the desired loan is a positive benefit for the borrower.
3. Limitations on cash out in the first year helps provide long-term sustainability for the reverse mortgage borrower by providing access to future funds while slowing the depreciation of the equity position in the home.
4. The new version of a FHA HECM Reverse Mortgages for wealth management firms is that the “Highest and Best” use of the HECM is to improve a client’s retirement plan, not rescue it.
Use a reverse mortgage to purchase your next home
Did you know that reverse mortgages can be used to purchase a home? For borrowers age 62 and over, reverse mortgages are another option to fund a new home purchase. Instead of selling your current home and paying 100% cash for a new home, you can invest some of your proceeds in combination with a reverse mortgage to fund the remaining amount. Your new reverse mortgage won’t require any monthly payments – you’re only responsible for property taxes, homeowner’s insurance, any HOA dues, and upkeep and maintenance of the home.
Use a reverse mortgage to access equity in your current home
There are three ways to access the equity in your home through a reverse mortgage:
- Line of Credit
- Lump Sum
- Fixed Monthly Payments
Important facts about the reverse mortgage program
- The loan is due when the last borrower passes away or moves into a long term care facility for 12 consecutive months with no prospect of returning back to the home. The loan will also be due if you decide to move to a new residence, sell the home, or refinance.
- Borrowers are still obligated to keep up with paying property taxes, maintain and pay for a homeowner’s insurance policy on the property, and continue to maintain the home in good condition.
- Homeowners or heirs never owe more than the home is worth. The FHA mortgage insurance is in place to pay any difference between the loan balance and what the home is worth if the balance exceeds the home value when the last borrower leaves the home. This insurance is paid as an upfront fee when the loan is taken out, as well as a monthly fee that accumulates along with the interest on the loan.