Reversible Mortgage and Home Equity Conversion
Home Equity Conversion (HECM) or reverse mortgage is a Federal Housing Administration (FHA) insured program for house rich, and cash poor older homeowners. In 1987, reverse mortgages became available, by US Housing and Urban Development (HUD), which part of HECM. According to the Department of Housing and Urban Development, end of the fiscal year September 2005, 43,131 government-insured reverse mortgages were issued (record).
Lenders include banks, mortgage companies, and other financial institutions, which will provide homeowner with monthly payouts until leaving the home, monthly payouts for a specified amount of time, a line of credit for withdrawing amounts as needed or a combination of a line of credit with a monthly payout. If the lender fails to make scheduled payouts, then FHA will make payouts to the homeowner. Amount available, depends on the value of the home, and age of the resident, which is determined by FHA appraiser. Any time in the future, if the loan balance becomes greater then the value of the home (Real estate prices depreciate), the lender cannot seek repayment from the income, which is a “nonrecourse” loan. Money from a reverse mortgage can be used for anything: Home repairs, daily living expenses, home modification, medical bills, prescription drugs, payoff existing debts, continuing education, travel, long-term health care, preventing foreclosure, and more.
Requirements for acceptance include: Home have no mortgage, homeowner(s) be at least 62 years old, and principle place of residence. Furthermore, repayment of the loan, made only when the homeowner sells or leaves the property. The homeowner or heirs are only entitled to receive any amount, of the sale of the property, excess of the amount that was borrowed. FHA requires that trained housing counselor explain home equity conversion to the homeowner and other financial options, before applying to a lender. The homeowner is responsible to pay property taxes, insurance and maintain the home, after receiving lump sum or payments. Income from a reverse mortgage is not taxable. Homeowner is entitled to leave the residence up to twelve months. Options can be specified for reverse mortgage for example: A ten-year conversion mortgage, which provides monthly income, for ten years. After ten years, the loan will not have to be repaid, until the resident sells the home, moves or dies.
Fees and Charges are included in reverse mortgage. These include: Mortgage closing costs four to five percent of the home value or FHA maximum limit, adjustable interest rate tied to the one – year Treasury rate, small annual FHA mortgage insurance premium, and a monthly lender service fee. These costs can be paid separately or charged against home equity.
Disadvantages to consider with a reverse mortgage. Any existing mortgage, have to be paid – off, with the proceeds of reverse mortgage. Income received will decrease, the equity value of the home, which may not be utilized in the future, for any emergencies. Interest rates and initial costs (application fees, points, and closing costs) are usually higher for a reverse mortgage. Payments may affect Supplemental Social Security Income and Medicaid payments, should consult with an accountant. Relatives or heirs of deceased, will not receive any value of the home, unless there is some amount available, after the lender has been paid in full (Including interest and finance charges). Understand living in the same neighborhood, as you grow older, and not having the home equity to utilize, for any future move.
On the Website, American Association of Retired People (www.AARP.com), located is reverse mortgage calculator. Provides an approximate estimate for two nationally available reverse mortgage programs. Information required: Year of birth, when was your spouse born (or other CO-owner), how much is your house worth, and zip code. Contact: AARP Home Equity Information Center – 601 E. Street NW, Washington D.C. 2004 – Tele: 202 – 638 – 2863. Reverse Mortgage Money – Tele: 866 – 363 – 1914
E- Mail: requestinfo@reversemortgagemoney.com
HEC/ Reverse mortgage programs (April 2004)
FHA – HECM (Home Equity Conversion Mortgage)
Guaranteed by FHA/HUD
Flexible Income Payment Option
Growing Line of Credit
Maximum Lending Limit – $280,749
HomeKeeper by Fannie Mae
Guaranteed by Fannie Mae
Line of Credit Options
Maximum Lending Limit – $322,700
