Home Loan Mortgages
In my previous posts I have been sharing and discussing various mortgage options for seniors to use if they want to borrow equity from their home.
There are advantages to each of them, but overall they will require a mortgage payment each month and depending on the borrower’s finances, that may become difficult in the future, which leaves the last option, the only one for seniors and has the greatest flexibility.
And that is the FHA HECM/Home Equity Conversion Mortgage, otherwise known as a reverse mortgage and it’s only available to seniors.
“Yes”, the Closing Costs are more expensive than the other loans, but the borrower will generally receive more money and not have a mortgage payment each month and that is “priceless”.
The amount is calculated on the age of the youngest borrower and the value of the property or the HUD Lending Limit whichever is less.
The Line of Credit will never be potentially “frozen” as could happen with a traditional HELOC, plus any unused funds that are in it, will increase over time, allowing more of the borrower’s equity to be available to them without re qualifying.
There is a “Fixed” rate reverse mortgage option for those who feel more comfortable knowing that the interest rate cannot change at any time.
The loan is insured by FHA and has no prepayment penalties on it and if a borrower wishes to buy it down or pay it off any time, they can without any restrictions.
And if they wish more funds than the FHA loan provides, a Jumbo Fixed rate mortgage can be had for properties that are valued 1 MM or more.
The borrower continues to “own” their property ( not the “bank”) and it will go to their heirs per their wishes who may want to keep it and refinance the reverse loan using a traditional mortgage, but in most situations they will sell the property, receive any remaining equity and have a mortgage interest deduction in that tax year.
And if the loan amount exceeds the value of the property, the estate is not responsible for paying the difference between the two and the FHA Mortgage Insurance Premium will cover the difference
In conclusion of these multiple posts, the choices for borrowing equity are a HELOC and a Second Fixed rate mortgage or a Reverse loan. Each person’s situation is different from another’s and what might be ideal for one, may not be the best for someone else.
Each one has it’s benefits and and drawbacks but only the potential borrower can decide and hopefully will select the most appropriate loan for their goal.
This is the second part of any article that I wrote about locating information about Reverse loans without getting “slammed” by a bunch of irritating sales people.
Your loan will have to go through a processing procedure and under the best of circumstances it will take about 45 days or maybe less to complete (Assuming you have provided everything the Lender needs on your file), which “then” the interest rate is locked and the loan documents are ordered.
Meanwhile, the “cost of money” is fluctuating every day.
Just like the cost of that television you were interested in purchasing.
Let’s say someone told you that they could give you a traditional 30 Year Fixed rate at 3.250 % at zero points.
By the time you have sent in your personal documentation, signed a loan application and disclosures, the appraisal is completed and your loan has finished processing, that rate could cost more or maybe less, but most likely it won’t be the same as what you were told when you did your initial phone call weeks before.
I will be posting the next section of my article in a following post.