Refinancing a Reverse Loan

Like any other mortgage, there may be a time when it’s optimal to refinance a reverse loan due to a drop in interest rates, increased home value or that the borrower is several years older than when they did their original reverse mortgage.

As of this posting, interest rates have decreased and many reverse loan borrowers are being solicited to refinance their current loan into a new one, however, there are some guidelines that have to be followed and not every borrower will pass them.

There has to be a tangible benefit to the homeowner to refinance their reverse loan and at the same time protect them from being taken advantage of and being charged unnecessary fees.

Regulations are in place to protect seniors from being taken advantage of and this has resulted in 3 “tests” to determine whether or not it would be beneficial for the borrower to refinance their current loan into a new one.

The borrower must pass 2 out of the 3 tests to be considered eligible to refinance their existing mortgage and if they do, they can apply for the new mortgage.

There is a”seasoning’ requirement and this means the loan has been in place for not less than 18 months from the time it was originated, funded and closed. Otherwise, the borrower will have to wait, although there are some exceptions to this, that could be discussed in an additional post.

  1. Closing Cost Test.   The increase in available loan proceeds must exceed five (5) times the total closing costs amount  This is the “benefit factor.”

2.  Loan Proceeds Test.  For any reverse mortgage refinancing the available Benefit Amount from the new HECM is the amount of the Principal Limit available to the borrower MINUS the HECM loan balance being paid off and the Closing Costs for the new mortgage.   This must equal or exceed 5% of the HECM Refinance Principal Limit.

3.  Rate Reduction Benefit Test.  The borrower must recover the total costs of the new loan through savings in the annual interest rate charged on the new loan within 4 years.

Confused?  Of course and the only way a borrower can find out if they would qualify for a refinance would be to provide a complete copy of their most recent mortgage statement to a reverse loan professional and have them do the calculations for you.

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Over the years I have refinanced many of my former clients, but they all have to pass the tests and most of the time they do.   If they wish to refinance into a Jumbo/Proprietary reverse loan, that can be done too, and the qualifying tests are very similar.

When in doubt, call your loan professional and ask them.   It might be a benefit to you at this time while the interest rates are so low and you might be entitled to more of your equity and increased cash flow.

 

 

 

 

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Reverse Mortgages in California

For seniors who live in California and would like a reverse loan to gain access to their equity, they often find that the FHA Home Equity Conversion Mortgage does not allow them enough of their equity to be available to them, and they end up leaving equity “on the table”.

Home values in California tend to be much higher than other parts of the country and since the HUD Lending Limit for reverse loans is capped at $765,600 that means if a borrower’s home value is considerably higher than that, their loan will be capped at the lower value and they would receive less money from the loan.

When that happens, the loan amount will be determined by the above Lending Limit.   But what if your home’s value is much higher than that?  If it is, then the next possibility is to apply for a Jumbo Proprietary reverse loan that I have discussed in previous posts.

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Not only are they more affordable in fees, but they will allow more of the equity to be available to the borrower.  It could be a Fixed-rate, a Line-of-Credit or even a 2nd. Trust Deed if the borrower is comfortable keeping an original loan in place.

Some of them have fees and other options do not, depending upon the loan and interest rate that is selected at the time of the loan application.

When considering a reverse loan, it is very important to know what your options are and what would be the best one for you to secure more funds from your home to protect your retirement funds, plan for caregiving expenses or take a dream vacation.

Please contact me if you would like a personalized proposal and more in-depth information about how a reverse loan might be just perfect for you.

 

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Options for Receiving Money in a Reverse Loan

The FHA HECM reverse mortgage is a Line-of-Credit that allows the homeowner and borrower three options to receive their money.  It is very flexible and the borrower can change the terms at any time they may want to, but what are they?

One option  ( and most borrowers will choose this), is to have money wire transferred to their checking account when the loan closes and funds.

Or they may wish to receive a tenure payment that will be funded to them every month for the rest of their lives.

Or a Modified-Term payment that I discussed in the previous post.   Regards of which option may be used, they all can be changed at any time or do a combination of them.   Whenever the borrower wants to make a change or receive additional funds from their account, all they have to do is contact the Loan Servicer and for a small fee of $25-$30 they can request a change.

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Maybe they want to receive their money every month for the rest of their lives.   This would be the Tenure option and it will continue to be deposited into their account indefinitely as long as they occupy the property.  Even if the funds in the reverse loan are exhausted.

Regardless of which option or combination a borrower may utilize, the borrower is required to live in the home, pay the property taxes and Homeowners Insurance and keep their home in good repair.

And what is the most common choice used?   Cash at the close of the loan and request funds from the Line-of_credit when they want more money in the future.

 

 

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Payment Choices for Reverse Loans

The FHA Home Equity Conversion Mortgage is a reverse loan and along with its many features for seniors, are different ways they can access their funds in the line-of-credit.  They can choose to not take any kind of payment and simply take out some money at the close of escrow, or do a combination of the different options.

  • Cash at the close of escrow with a “tenure” payment.
  • Tenure payment only
  • Modified Term payment and if they want it, cash at the close of escrow.
  • Or no payments at all.   But payments can be set up later if the borrower wishes to have one at any time in the future, as long as there are remaining funds in their account.

Very few of my clients have ever opted for any kind of monthly payment, but let’s take a look at what a Modified Term Payment is.

The borrower chooses a certain amount of money to be sent to them each month, such as $2,000 for 10 years. Depending on the age of the youngest borrower and how much money is available in their account, they will receive it each month but not for their lifetime.

At some point in the future, it will stop being sent to them,  (10 years in this example) but if they still have money in their account, they can set up a new monthly payment, a tenure payment or stop it altogether or request a lump sum.  Again, it depends on how much reserve they have in the line-of-credit.

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Every person has their own unique concern or goal and depending on a number of factors, such as paying off a large mortgage, there may not be enough money left in the account to choose a payment option, but at the least, they will have eliminated their mortgage payment and that would become extra income to them each month.

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Grief, Loss and Christmas

My blog is a place and resource for seniors and their families to explore and learn about reverse loans, but over the years I have written about many issues that concern seniors and what it means to be older.

And this is one of those times when I won’t be talking about reverse mortgages but what it means to have someone die who you loved and how to move through the loss when the pain is so intense.

Everyone experiences death and grief and it is especially difficult the first year and experiencing the Holidays “alone”.  When they are promoted as a time that is supposed to be happy, time with families   ( And that is not always happy, but stressful), someone who is grieving can feel very alone.

I recently met Calista Anderson who is a Certified Grief Recovery Specialist for lunch and we discussed the sadness and grief that too many people are suffering from and the following “post” is her insights and suggestions on how to not shut out grief, but to let it become part of your life and still live fully.

Grief & The Holidays – A Personal Story

Growing up as a child, the holidays were always my favorite time of year. We put my snow globe collection out on display, picked out a healthy Douglas Fir from the Christmas Tree lot and made our rounds through the neighborhoods with the best Christmas decorations. This was a time that encapsulated family gatherings, gift-giving, family unity, and of course, delicious food.  It was also a time when I was reunited with family I didn’t normally see, a pleasant reminder of the love in my life.

While many can relate to the experiences described above, for those who have lost a loved one, the holidays can develop a whole new meaning devoid of cheer. When my mother died in September of 2010, my entire world changed in the blink of an eye. I remember that first holiday season I came to the grave realization that she had been the cohesive force that unified our family. Grief – a five little word that held so much complexity. Not only was our family grieving the loss of my mother, but we were subsequently grieving the loss of each other and the holidays because of her death.

A long and painful eight years passed before I was able to truly heal my broken heart caused by the death of my mother. Despite being successful both professionally and academically, it was evident to me that the memories of my mother haunted me, and her death negatively impacted my happiness, my quality of life, and even my relationships. When a friend had mentioned Grief Recovery, I was a bit taken back – confused about the words “Grief” and “Recovery” next to each other. It was my understanding that “grief” and “pain” were somewhat synonymous and that ultimately the pain from grief was just a sad fact of life every person must surrender to. But, to recover from grief? Needless to say, my skepticism was alive and well.

Prior to Grief Recovery, I had attended grief support groups and benefited tremendously in the short-term from the ability to process feelings, temporarily relieve built-up emotions, and identify with other griever’s experiences. What differed from Grief Recovery, in relation to grief support, was that Grief Recovery was an evidence-based, action- based program that provided long-term relief from grief. In a series of six sessions, I learned all about the misinformation surrounding grief, the proper way to approach myself and others who had experienced a loss of any kind and was able to identify what was left emotionally incomplete with my mother. By going through this process, I was then able to complete the relationship with my mother, resolving my grief, and subsequently transforming my perspective of the memories I shared with her, her death, and my life overall. As a result, the Grief Recovery Method allowed me to re-engage with life in a way like never before. In hindsight, I had no idea how much I was suffering due to my broken heart until I experienced what it felt like to truly heal.

One of the most magical gifts Grief Recovery has given me is the ability to fill my mother’s shoes during the holidays. With my heart mended, I can now be the cohesive force that unites my family during the holiday season. While we will always miss her, she is irreplaceable, and the holidays will never be the same without her, I am grateful that our family is back together. Equally as important, I have fallen back in love with my favorite time of year.

If you are suffering from a death or non-death related loss, or resonate with anything mentioned above, you can contact the author directly at:

LivingBeyondGrief.net

(323) 475 1080

 

Calista Anderson

Certified Grief Recovery Specialist, Living Beyond Grief

(323) 475 1080 | LivingBeyondGrief@gmail.com

LivingBeyondGrief.net

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