Reverse Mortgages

Reverse Loan Choices

Most of the reverse loans that are originated are the FHA HECM program and over the years has been the “workhorse” for allowing seniors to utilize their home’s equity without having to qualify for a mortgage payment.

And as of this post, that continues to be the most commonly used reverse mortgage, however, in the last few years, another option has become available to seniors, especially those who have expensive properties at one million dollars or more.

The FHA HECM loan has a cap on the value of the subject property   ( As of 2018) of $679,650 and the new loan will use that as the maximum appraised value, a percentage of “that” and the youngest borrower’s age to determine the amount of money the senior will receive at the close of escrow.

But what if you want more money than it will provide or you have a large mortgage you want to be paid off, but the funds in the HECM are insufficient to achieve this goal?

A Jumbo proprietary reverse mortgage might be the solution because the loan will consider properties valued as much as 6MM and as low as $700,000 and the interest rates are “fixed”.   An additional benefit would be if someone lives in a Condo that is not on the approved FHA Condo list (That means they cannot do a HECM), a proprietary Jumbo reverse loan is the answer to this common problem.

An additional benefit to using this loan is that the Closing Costs are less than the FHA HECM because the borrower is not being charged the MIP insurance premium that all FHA loans require.   And some are not charging an Origination fee, making the loan much more inexpensive to the borrower in comparison to the  HECM.

As more lenders are offering Jumbo reverse loans and the industry evolves to meet the demand for them, I am sure that there will be new programs and opportunities for seniors to access the equity in their homes into the future making their retirement years more affordable and comfortable.

Continue Reading

The True Costs of Waiting

Too often in my profession as a Reverse Loan Consultant, I see this happen.   The potential borrower wants to wait and “think about it” as to whether or not they wish to apply for the loan.   Depending upon their situation this may prove to be very costly if they are withdrawing funds from their savings to make mortgage payments and especially if they are on a fixed income as most seniors are.

How long will their savings last and will the funds they withdraw have possible tax consequences?

Or it’s the adult children of a senior who now requires professional caregiving services and they are running out of money to pay for their care but they hesitate to use the equity in their parent’s home to cover this expense, because they want to “protect” their inheritance or they are withdrawing their own funds from a savings to pay for the monthly expenditure.

Sometimes the adult children feel that the best solution is to sell their parent’s home and use the funds they receive from it’s sale to pay for caregiving in a senior community or Board and Care home.

The costs of selling the home can be exorbitant, especially if there is a monthly mortgage payment due each month and if there are any repairs needed prior to Listing it and the long hassle factor of waiting for someone to purchase it and get approved for their own mortgage.

Surveys have found that overwhelmingly seniors want to remain in their homes and do not want to move out.   They want to stay “put”.

Professional caregiving is very expensive and can run from $3500 to $8,000 a month or more.  Waiting can quickly deplete a savings and a retirement fund and any money received from the sale of their home.

Using funds from a reverse loan and the equity in the senior’s home is a safe and realisic option to pay for their care and allow them to enjoy continuing living in their home.

But they hesitate and hesitation can be expensive and would be considered an example of the “cost of waiting”.

Mortgage interest rates have increased recently making borrowing money more expensive and from one day to the next, we never know how much the cost of money will effect mortgage rates in the future.

As of this writing, rates are still excellent even though they have increased a bit this year, but if anyone is thinking about looking into getting a reverse loan and continues to wait because they are afraid, they may find out by the time they decide to do anything, the interest rates will have increased and they will receive less money from the loan.

What is the” cost of waiting?”

Continue Reading

Decision Making and Fears

I think it tends to be human nature in that for some people, they hesitate to make a decision for just about everything that requires one.   Whether it is getting married or maybe divorced, having children, taking a leap at a new career or choosing a paint color for their house.

And it’s prudent not to blindly rush into anything, you should be well informed before making decisions that are especially crucial to your life.

Most of the time these decisions are minor, but what about the ones that are not and could potentially have a huge impact on your life and future?

Sometimes this hesitation comes from looking for the best price for something if you are considering doing a large purchase, but other times it comes from a place of being worried about the possibility of making a “wrong” decision.

Or not being educated enough about whatever it is you are considering.  So, you put off making any decision about it indefinitely.

A good question to ask yourself is, “what is the worst thing that could happen if I make a decision and it turns out to be awful?”   Asking yourself that question can potentially take away your fear and help you to move forward.

However, hesitating or waiting can continue for a very long time and it can be costly.    And what is the “cost’ of waiting?

If you are hesitating in learning about reverse loans because you have heard “bad things” about them, why are you allowing yourself to be influenced by other’s opinions that generally are incorrect instead of doing some research with a professional?

What is this inertia costing you every month that you wait to find out how much money you could possibly receive from the HECM loan?

It’s fear.

Continue Reading

How to Buy a Vacation Home

If you are a senior and  own your home but are still holding out on that dream of having the ultimate vacation property which you have wanted for years, you might just be “sitting” in the resource to make that dream a reality.

Why not use funds from a reverse loan to purchase that cabin, beach house or even a tree house?  Why not?

If you have enough equity in your residence you could possibly qualify for the FHA reverse loan or a Jumbo reverse mortgage and use the funds from it to purchase a second property.

Its much easier to qualify for a reverse mortgage then traditional mortgages, because they are not Underwritten using Debt to Income ratios or FICO scores, but are based upon residual income and verification of 24 months of “timely” payments for property taxes, Homeowners Insurance and any other expenses associated with the client’s residence.

You will still be on Title of your residence and continue to own it and just as you wish, it will go to your estate when you have passed on.

Not the Lender.

You won’t have any mortgage payments for the reverse loan and if the vacation property does require a mortgage (If you can’t pay “all cash” for it), you could cover those payments by renting it out during the local tourist season and still have it available for yourself whenever you want to visit it and enjoy your vacation property.

So where is your “dream” property? A beach, a lake, the mountains, the desert or an island?

What’s holding you back from enjoying your retirement years that could include more skiing, fishing, golfing, sailing or simply sitting back in an Adirondack  chair on a deck, looking at blues skies, trees and hearing birds sing?

That sounds really nice to me as well.

Continue Reading

The Differences Between a HECM and a HELOC

I previously discussed in earlier posts some of the details and considerations when a senior might be thinking of borrowing equity from their home and they have four options.

  • Refinance their home using a traditional mortgage – There will be a monthly payment
  • Do a Home Equity Line of Credit/HELOC – % only for five years then become fully amortized for remaining 10 years.   There will be a jump in the monthly payment.   “Payment shock”
  • Get a Fixed rate 2nd. Deed of Trust – Fully amortized monthly payment for 15 years.
  • Use a HECM/Home Equity Conversion Mortgage; a “reverse” mortgage.   No payments or loan term.  It is in effect as long as the borrower continues to occupy the home and/or they”pass” away.

Let’s examine the options a little bit closer.  The first three choices all require the borrower to qualify using their income and credit, plus they will have monthly mortgage payments.

Initially, the first 3 options are less expensive in closing costs, but there are risks associated with obligating oneself for a mortgage payment in the later years of their life.

If the borrower is currently employed and plans on working for many more years, then maybe the first 3 choices are ideal.  But what if you want to retire?  The mortgage payments won’t go “away”, the borrower will have to continue to make them each month.

Doing a traditional “cash-out” refinance is certainly an option to consider especially if the existing mortgage is at a high interest rate or it’s an Adjustable Rate Mortgage  ( who knows what will happen with interest rates in the future?  They will probably increase).  And of course, there is a monthly mortgage payment to be made.

Is this a particularly good option for a senior to continue to maintain an ongoing mortgage for many more years?

I will discuss the other three mortgages in my next post and each of them can be appealing depending on the borrower’s circumstances and what they are attempting to accomplish.

 

Continue Reading