A common question that comes up, is the reverse loan offered by the government? And the answer is yes for a certain type, while there are some other programs that are available for larger loan amounts and they are called proprietary reverse mortgages.
The most popular program is the one offered by FHA/HUD, federal agencies and it’s called the “Home Equity Conversion Mortgage, otherwise know as “HECM”. A reverse loan is highly regulated by federal and state laws and are considered to be the safest loan in the lending industry.
In 1989 HUD selected 50 lenders that would offer the first FHA reverse loans. Previously they were being done but were a terrible option for a senior. Typically there was equity sharing with the lender and sometimes the borrower was required to purchase an annuity. Due to these earlier loans and how awful they were, the reputation of the loan became tainted and it’s been a bit difficult to overcome the old persona.
But once the federal government stepped in and developed regulations to protect the senior, they have become an excellent option for additional funds for living expenses or any other purpose.
Their popularity has increased substantially in the last three years as seniors have recognized the benefits from having the loan and the peace of mind knowing they money at hand in the event of an emergency or for monthly expenses and especially for prescription and medical costs.
Counseling by a HUD approved agency is required of all applicants and with the additional overview of the federal government, a reverse loan is an excellent and safe option for a senior to have access to their equity and know that their funds are insured, completely safe and protected.
The problem with using them is their unreliability. As of this time there are many more choices for a Reverse loans than there were a few years ago, making it extremely difficult to present each one in such a limited format.
And if you don’t answer the questions correctly on the calculator, you will not receive the right figures and everything will be off. The other issue is that they must be updated each week as the interest rates on each loan progam changes on a weekly basis.
If the administrator for the site isn’t on top of this and not updating the rates each week and if the individual who is requesting a quote enters any of the information incorrectly that is needed to determine a loan amount , the end result will obviously be wrong.
Due to the fact that there are so many different Reverse loan programs these days, it’s impossible to list each one within the confines of a calculator, and it will result in limited information for the consumer. And if the consumer tries different calculators from several web sites, they will probably come up with many differing figures, further confusing them.
As a professional, I would be remiss in providing a method that is at best, “sort of, maybe, kind of” the numbers that a person wants to see but are typically wrong. For anyone to make a decision as to whether or not the loan is appropriate, it’s best to speak with a trained Reverse loan consultant who can give you many examples for your review.
Please feel free to contact me if you wish further details, as there is no obligation on your part to do business with me. I personally feel that it’s crucial to illustrate the correct figures as of the time of the inquery and to be educated on the benefits of the loan.
I had attended one my my Chamber breakfasts this morning and I mentioned the difficulty that adult children are facing with their senior parents. As of this time, there are 20 million people that are either financially assisting their parents or doing some sort of care giving. And in many cases they are doing both.
This puts extreme pressure on the entire family and typically the one who is providing the care giving becomes quite ill within a year. The solution is to use funds from a reverse loan to pay for professional help and relieve the family of this hellish situation.
After the breakfast, someone approached me with this identical situation. The immediate family is overwhelmed, angry, in pain and suffering with guilt. The senior parents, well…they’re angry, too.
She said that she would pass on my name to her friend and hopefully she will contact me and if a reverse loan isn’t a solution, I can at least point them in the right direction for an assessment of the parents’ conditions and possibly have a professional care giver come in for a few hours each week and provide some relief for the family.
In all of the hoopla regarding the passage of H.R 3221 a week ago, nothing was mentioned in the media about the provision regarding Reverse loans. The FHA Home Equity Conversion Mortgage (HECM) will have it’s lending limit increased nationwide to $417,000.
In the greater metropolitan areas, that figure could be $625,500! In either case, these amounts will be the same throughout the United States and no longer based on the previous method of using the amount designated by a County.
As of this time, there is ongoing discussion as to whether the 417K will be the “floor” and the $625,500 the ceiling but until that is decided it could cause a delay in moving forward with these new figures.
There is also a provision that will allow the funds from the HECM to be used for a home purchase. This could be very signaficant for a senior wishing to relocate but unable to qualify and make mortgage payments on a traditional loan.
I don’t have any additional details on it as of this but the time. But the projection is for it to be available sometime in November.
The loan origination fee has been reduced by .50% but in actuality, the overall cost to the borrower doesn’t change, because of the higher lending limits. This is because the Mortgage Ins. Premium (MIP) that is charged by FHA, is based on the lending limit and since they are going to be higher, pretty much washes out the savings gained from the lower origination fee.
There is a misconception among the general public and professionals as well, that when the last survivor passes away, the Bank will assume ownership of the property and the heirs will receive nothing at the end of the loan. This is one of those persistent myths that as continued for quite some time and is totally incorrect and sadly hurts the senior community and their families when they are trying to make a decision as to whether or not a Reverse loan would be appropriate to use. When the last borrower passes away, the heirs inherit the property, at which time the loan becomes due. The family will have 12 months to pay off the loan and typically it’s done through the sale of the property. When the sale is concluded, they will receive the remaining equity and any interest that has accrued on the loan, is a tax deduction for the heirs within that year.