Reverse Loan; Fixed or Adjustable?

Reverse loans offer many choices to senior borrowers, but it can be confusing to decide which one to use because they are different from traditional mortgages, no mortgage payments are required and they are easier to qualify for on a fixed income.

And they also do not have a loan term.  Reverse loans are still a mortgage, but unlike what we are all accustomed to.   They are different, but similar in that both are liens against the subject property.

In the past when applying for a mortgage to buy a home or refinance, the most popular one was the Fixed rate, because you always knew what your mortgage payment would be, unlike an Adjustable Rate Loan where it can change and possibly increase over time.

And everyone always shops for the lowest interest rate, but that meant you had to pay more Points to get a low interest rate, but if you chose a higher rate the Points would decrease, or possibly be a “Zero” Point loan.

However, with a reverse loan, it is entirely different.   There are no Points, but an Origination fee and sometimes, there isn’t any fee at all.

The other difference is how the selected interest rate determines how much money you will receive from a reverse loan.  Sometimes the lower interest rates provide less money, and cost more, but if the loan is being used to pay off an existing mortgage and freeing up more cash flow, then that would be a consideration.

And then there is the question whether or not to chose a Fixed interest rate or the HECM Line-of-Credit.  is the borrower paying off a large mortgage?   Then the Fixed rate might be the best choice.

But if there is a small mortgage or none at all, then the HECM Line-of-Credit would be the preferable choice, as it will give the borrower more flexibility with their funds, plus it has a “growth” feature that will provide additional funds in the future.

Anyone reading this is most likely thinking, it’s confusing.   And it is.   And that is exactly why it is important to meet with a Reverse Loan Consultant who can provide you with a personalized proposal and eliminate some of the confusion.

In the midst of Covid-19 and the uncertainty of the future, more seniors are now actively investigating the benefits of a reverse mortgage and many have applied for their own loan to preserve their savings and have a financial “safety net”.

And maybe you should, too.

 

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Unplanned Life Events

We can never know what might or could happen in our lives from day to day.   Recently it has been the pandemic of Covid-19 that has killed almost 200,000 Americans as I am writing this and the extreme fall-out from it which has created a massive amount of people who have lost their jobs and businesses.

Then there are the weather events.   Massive killer fires in the western half of our country and the East and the South have to face more hurricanes and flooding.  No one feels safe anymore and if you are a senior, even less so.

And that is why more seniors are seriously considering using a reverse loan so that they have money that is “banked” and available to them no matter what happens.

One example would be they have an insurance claim for damage to their home and the insurance company is fighting with them over it, at least they have money in the meanwhile to take care of their personal needs until they reach a settlement.

Add in isolation for seniors due to Covid-19, and anxiety about money is not a positive situation, but at the least having enough money reduces some of it, and about how to pay for food, care giving and other monthly expenses.

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If a senior has been relying on income from being employed to pay their mortgage payment, but now they are unemployed, they could refinance into a reverse loan that doesn’t have a monthly payment.

But reverse loans have a reputation for being expensive, but are they?   They have the same costs as a traditional loan,  but many people have heard they are expensive, but in truth, they are not.

Now more than any time in the past, is the time to learn about reverse loans, how much money you could receive, and if doing one is your best option to eliminate your worries and fears about the future.

Contact me for a chat about your situation and find out if a reverse loan be of value to you.

 

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Buying a Home

Mortgage interest rates are so low, the lowest they have ever been having caused Americans to rush into the very competitive Real Estate market and buy homes to take advantage of the interest rates as quickly as they can locate a property to purchase.

If you are a senior, you may be considering selling a large home that has become a burden in maintenance for you or no longer suits your lifestyle, and have started to look at Listings of homes in your area before you decide if you want to stay where you are or sell your home and move.

If you decide that you are ready to make a change and maybe you are considering moving into a 55+ community,  a new Tract development, or a previously owned home, you can apply for a reverse loan rather than traditional financing.

A reverse loan is easier to qualify for, you will not have to be concerned about being approved using Debt to Income ratios or FICO scores.   The Title will be in your name, you will be its owner, not the Lender.

And the best news?   You will not have any mortgage payments.

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Becoming approved for a reverse loan is much less difficult.   Generally, when a reverse loan is used to purchase a new home, the buyer will put down approximately 50% of the sales price.   Obviously the funds would come from the sale of their current home.

Find out early in your “search” how much you could be pre-approved for and receive a letter from a reverse loan lender ( me), that will help you to leverage your offer and “seal the deal”.

Contact me and we can chat about it and I will provide you with information to help you work with a Realtor and answer your questions on how to get started.

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Reverse Mortgage Foreclosure

So what happens when the last borrower on the reverse loan passes away?

The terms of the loan state the borrower must occupy the property to avoid foreclosure, but if they have died, the loan is now technically considered to be in foreclosure.

However, as long as the Estate notifies Loan Servicing about the situation, they will be given ample time to repay the loan balance.

The Lender does not want to property, in spite of the myth in the general public’s opinion.

Assuming the borrower has family and they are considered to be the “estate”, they have two choices to repay the loan and the Lender will give them up to a year to satisfy repaying it.

List and sell the home.   And that is what most family members do.   They don’t want the home.   They receive any remaining equity, plus a mortgage interest tax deduction for the interest that accrued on the loan ( There are no mortgage payments).

One or all of the family members apply for a traditional mortgage,( have the Title put into their names) and keep the property.   They would still receive a mortgage interest tax deduction in the year they repay the loan back to the Lender.

I do have an excellent booklet for family members that was published by the National Reverse Mortgage Lenders Association that explains the process when it is time to satisfy the loan.

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If anyone reading this post wishes for a copy of it, please contact me and I will send it to you.

Reverse loans have improved thousands of lives of seniors everywhere.   They help with cash flow, paying for caregiving expenses, and eliminate living in fear of running out of money and they have brought comfort and peace of mind for seniors and their families.

They are not defined at predatory lending.  They are well regulated and the protection of the senior is of utmost importance in our industry, and countless seniors and their families are relieved of the financial burden and worry about how to age in place.

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Foreclosures on Reverse Loans

When a senior or seniors wish to apply for a reverse loan, there are many safeguards in place to protect them from financial abuse, typically from a family member and also from making a decision that may not be the best option.

There are many regulations and oversight by HUD to protect seniors from being scammed and losing their homes, but unfortunately, misconceptions continue and some seniors and their families believe that the bank will take their home and the Lender takes advantage of seniors.

None of which is true.  Here are the responsibilities of the reverse loan borrower and how they can prevent foreclosure on their home.

  • Before they can apply for the reverse loan, they must complete phone counseling with a HUD-approved counseling agency.   The purpose of the counseling is to make certain the senior understands how the loan functions, why they want additional money, and is anyone trying to take financial advantage of them.  They cannot begin the loan process unless they have done the counseling and have a HUD Counseling Certificate provided to them.
  • They must occupy the property.  (One borrower can be in assisted living as long as the other continues to live in the home.)
  • They must pay the property taxes and not be late on them when they are due.
  • They must keep their home insured with Homeowners’ insurance.
  • They must keep the home in good condition and repair.

If they are delinquent on taxes or insurance, Loan servicing will contact them and ask if they need help with the payments, or maybe they just forgot to pay them.   And the Lender will provide them enough time to pay what is owed on their insurance or their property taxes.

But they might receive a letter stating they are potentially in foreclosure.

This is the responsibility of the homeowner and is clearly stated in the loan application and Loan documents.  Plus the HUD Counselor will discuss this with them as well.

The borrower must continue to pay property taxes and Homeowners’ insurance, otherwise, it can trigger foreclosure and it is clearly disclosed to the potential borrower during the loan process.

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When the loan is being processed, the Underwriter will review 24 months of property tax and Homeowner insurance, and if late payments have taken place, the Underwriter might suggest that some of the funds from the reverse loan, be set aside for future payments on these obligations.

Since the borrower is obligated to occupy their home, what happens when they pass away?  Technically, they are no longer occupying the property, per the terms of the loan and that would trigger the foreclosure process.

Continued in the following post.

 

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