about reverse loans

March 13, 2020 Reverse Mortgages No Comments

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.

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.

September 5, 2018 Buying a Home, Reverse Mortgages No Comments

Realtors Increase Their Sales

Well, actually they “could be increasing their sales” if they understood how a senior client could use funds from a reverse loan to purchase a home.

Although the HECM for Purchase has been available for several years, it seems that most Realtors are unaware of it and or they don’t understand reverse mortgages and how they can benefit their senior clients and their own business.

Apparently, some who do know about it, are apprehensive about this mortgage financing option and because of that, they are not considering it’s use for their older clients. And that is because they are unfamiliar with the loan, the benefits and in general how it functions.

They are doing a disservice to their senior clients and themselves because they could receive two commissions. One for the Listing their client’s home and one for selling them their new property.

Generally, the client will sell their current residence and purchase another home using the funds from the sale of their home for the new purchase, typically about 50% for a down payment.

And if they are buying new construction they can apply for their reverse loan prior to the authorities issuing a Certificate of Occupancy, that can speed up the loan process rather than waiting for the Certificate to be issued and then applying for their loan.

It’s an ideal option for seniors to buy as they don’t have to qualify on Debt to Income rations or FICO scores, have no mortgage payments and own the property as the Title will record in their name or Trust.

And overall, it’s a much less stressful experience compared to applying for traditional mortgage financing and can be accomplished quicker as well, taking away much of the anxiety associated with purchasing a home.

And when they pass away, the property will go to their estate and designated heirs, not the Lender.

In conclusion, more Realtors should learn about how to increase their own sales and help their senior clients into properties that better suit their needs as they age.

August 10, 2018 Jumbo Reverse Loans, Reverse Mortgages No Comments

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.

April 30, 2018 Repaying a Reverse Mortgage No Comments

When Does a Reverse Loan Need to be Paid?

This is a question that many ask about since there are no mortgage payments made on a reverse loan as are required on a traditional loan.

Plus there is no loan term but when does the loan become due and what are those circumstances?

They are referred to as a “maturity” event and include the following situations.

Sells the home Conveys title of the property to someone else
Passes away
Resides outside of the principal residence for a period exceeding 12 consecutive months due to physical or mental illness
Fails to pay property taxes, insurance premiums, condo fees, and other “mandatory obligations,” and all options to bring the loan current have been exhausted
Fails to maintain the home and allows it to fall into disrepair.

The most common reason for the loan becoming due and payable is that the borrower(s) has passed away and the property and or the estate has been received by the heirs.

As soon as is possible, the heirs must contact the Loan Servicer letting them know that the borrower(s) have passed away. The Loan Servicer will send them by mail a “Due and Payable” letter within 30 days and the heirs must respond as soon as possible to the Lender.

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The Loan Servicer will explain the options the heirs have to repay the loan and it’s very important that the heirs contact the Lender by calling or emailing them to avoid the possibility of a foreclosure being activated by the Lender.

The Lender does not want to foreclose on the property and the heirs have the option of refinancing it and putting the Title in their name or simply selling the home and thereby paying off the reverse mortgage.

But it is crucial that the heirs respond to the Lender letting them know how they plan to repay the loan. The Lender will work with the heirs and help them through the steps to satisfy repayment, but communication is very important in the process.

My next post will go into additional details about how to satisfy the repayment and other details about the entire process.

November 3, 2017 Reverse Mortgages, The Truth About Reverse Mortgages No Comments

Reverse Mortgage Misconceptions

In my previous post, I discussed the negative image of the Reverse loan and where it came from and how we in the industry, are still plagued by this perception that is no longer true.

In spite of the amount of television ads and the many qualified resources for accurate information about the FHA loan program, there are still many people that continue to believe that they are a terrible option for a senior to use to access their equity.

Not true.

And I have to wonder how many seniors chose not to take advantage of the HECM program when it would clearly benefit them, due to their fear and lack of credible information.

I do not work for a BIG Lender, I am employed by a Broker and I work independently from my home office and I always, always meet potential clients personally in-their-homes.

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I do not advertise and neither does my Broker and I conduct my business 100% referral based. From former clients, Bankers, Trust and Elder Law attorneys and Financial Advisors. I have built relationships with them over the course of many years and they know that they can trust me to take excellent care of their clients.

That is how I transform mistrust and lack of credibility. And most importantly, I do not pester them to apply for the loan. It takes time to make a decision and it has to be the best one for the client. Not me.

However, an excellent resource for information that is accurate and correct is to chose one of the HUD Counseling agencies and request a telephone appointment for Reverse loan counseling. They generally charge between $125 to $150 for an hour session, but it’s worth it and will give a person a better grasp of the loan and how it may or may not benefit them.

Here is a link to HUD for a list of approved counseling agencies.

https://www.hud.gov/program_offices/housing/sfh/hecm/hecmlist

So “whatever you have heard”, don’t believe your neighbor, friend, hairdresser, financial advisor or anyone that is not qualified or knowledgeable about Reverse mortgages.

Because they simply do not know anything.

Only “what they have heard”.