applying for a reverse mortgage
Many families of seniors are facing a serious problem of not only aging parents who need assistance at home with their health problems but how to pay for this invaluable service.
Too often the care of older parents falls on the shoulders of one family member, who is typically a middle-aged married woman, has children at home and quite often has a career or is employed. Once a family member attempts to care of their parents on their own and without any help from other members of the family, they often develop their own serious health issues and sometimes die within a year due to the stress they are experiencing.
A family can quickly fall into bickering and fighting about how to handle the situation and in addition to this problem, there are the expenses of actually hiring a professional to provide the necessary assistance to the senior who needs help when the family member can no longer manage it on their own.
The fees for such services can vary, but on the average and depending upon if the care is needed 24/7 can be as high as $10,000 a month. How and who will pay for this? The family?
Probably not, but what if funds from a reverse loan were used to pay this expense? Why not utilize the equity in a parent’s home to cover this expense and any additional expenses for their care that may occur as time passes?
Using the equity in a parent’s home makes good sense for everyone in the family. The parents will be well taken care of and their family will not have to be overwhelmed with this responsibility, not use their own funds, miss family time or take time off from their professions each time an emergency comes up with their parents.
In conclusion, it is an excellent option to pay for the fees of caregiving and it is also a solution to keep families from using their own funds to pay for a caregiver, but also to protect their own health and the unity of their family.
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.
There are actually two totally different reverse mortgages that are available for seniors to use when they are considering using a Reverse Mortgage to pay off an existing mortgage or simply want additional funds.
Not too many consumers know about the optional “Jumbo” reverse loan that will enable them to receive more of their equity than they would if they used the FHA HECM program, plus it’s less expensive as well.
The FHA Home Equity Conversion Mortgage has a ceiling on the appraised value of a property and it is referred to as the HUD Lending Limit. Originally this Limit was calculated on a national basis per county, so it varied in the amount of allowable appraised value of a property, county by county with the west coast having the highest limits.
Several years ago HUD eliminated these unfair limits and issued one single amount for the entire country which at this time is $636,150 but I can recall when it was only $362,790 and lower.
It’s considerably higher now, but keep in mind that the actual amount of the reverse loan will use a smaller percentage of the appraised value of the property or the HUD Lending Limit, ( Whichever is less) than a Conventional loan would use and most often ( Depending upon the age of the borrower) they might receive between 40-70% of the appraised value/Hud Lending Limit.
But if their property is worth 1.1 MM plus, the value will be capped at the HUD Lending Limit and they will not have any of the remaining equity in their property accessible for their use.
This is where the Jumbo Reverse Loan becomes another option, unlocking the rest of the equity in the property to the borrower and enabling them to draw out more money from their home then they could receive under the HECM FHA loan.
I will give the details about this loan in my next post.
Alright, here is the third part of a long article that discusses the various payment options from a Reverse Mortgage. And the one that is overlooked and could be very beneficial to the borrower, is the Tenure payment.
New Research Shows Financial Planning Value of Tenure Reverse Mortgages
Posted ByJason OlivaOn March 3, 2016
“Although the popular financial approach to generating retirement income has been to rely on systematic withdrawals from investments, such as stocks and bonds, the researchers suggest planners have two additional options worth considering: reverse mortgages and annuities.
“Such options may be particularly useful for clients whose finances are constrained and they need to either generate more retirement income or make the income more secure,” write Tomlinson, Pfeiffer and Salter.
An issue for planners, they suggest, is how to choose among these two options and how to combine these alternatives in a way that best meets client needs.
Ideal candidates for annuities, particularly SPIAs, are those who need more security so that their retirement income will last for life, and can tolerate the illiquidity that a SPIA entails, according to the study. Whereas for reverse mortgages, ideal candidates are those who need additional retirement income, plan to stay in their home for life, have adequate long-term care insurance and do not plan on leaving a bequest.”