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February 20, 2020 Jumbo Reverse Loans, Reverse Mortgages No Comments

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.

July 8, 2019 Reverse Mortgages No Comments

Reverse Loans and Maximum Claim Amount

Calculations for determining a loan amount on a traditional mortgage rely on a certain percentage of the appraised value of the subject property, and are referred to as the “Loan to Value” figure and can be as high as 100% of the appraised value of the property, but are generally less.

However, the calculation used to determine the loan amount for a reverse loan is completely different and can be confusing for the consumer and is called the Principal Limit and is the total borrowing power available to the borrower when they apply for the mortgage.

Just what are the steps in the calculation that is used to determine the reverse mortgage amount?

The adjusted property value of the property is multiplied by the “Principal Limit Factor (PLF) which is based on the age of the youngest borrower or non-borrowing spouse and increases for older borrowers.

The Maximum Claim Amount (MCA) is the lesser of the property’s appraised value or the National Lending limit for FHA which as of the writing, is $726,525.

If we were using the term “Loan to Value” ratio, the percentage will always be less than what can be gained from a traditional loan, because there are no required mortgage payments, thus the loan amounts will be smaller than on a traditional mortgage.

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The life expectancy of the youngest borrower effects how much money the loan will provide and the younger they are, the less money they will receive and conversely, the older borrower will receive considerably more money due to the PLF because their life expectancy is shorter and there is less likelihood of the loan balance exceeding the value of the property in the future.

It is important to understand that “shopping” for a reverse mortgage and calling a multitude of different Lenders about their reverse loans, is a waste of time. Every Bank or Broker utilizes the exact, same method to determine the loan amount, as it is the methodology that is uniform to the reverse loan industry.

This is a brief explanation of how reverse loans are calculated and will be different for each person, but I hope this helps and takes away the confusion for seniors and their families.

June 4, 2019 Fees, Reverse Mortgages No Comments

Reverse Loans and MIP

In the post that I previously shared, I discussed the fees and costs the borrower pays when they originate a reverse loan, and I mentioned the fees were very similar to traditional mortgages with the exception of the Mortgage Insurance Premium.

This insurance fee is quite expensive and gives the reverse loan a reputation for having higher closing costs compared to more traditional loans and I agree. it is expensive, but it is important to understand why it is being charged and how it protects and benefits the borrower and their heirs.

A reverse mortgage or HECM is insured by the federal government and will be repaid in the future regardless of how long the borrower(s) lives or if the property value declines. It has a “non-recourse” feature and that means you can never owe more than the property is worth at the time the loan is repaid.

If for any reason all of the equity has been used over the years and now the loan balance exceeds the value of the property, the borrower and or the estate will not have to pay the difference between the two figures, as the MIP will cover the shortfall.

At the time of the loan application and Closing, the fee is currently 2% of the Maximum Claim Amount and an annual fee for the life of the loan at .50% that is charged upon the loan balance during the time the loan is active.

I don’t want to make my explanation too complicated or confusing, so, for now, I will conclude my comments but will discuss the fee further in my next post and why it’s such a great benefit to the borrower and their heirs.

I will explain what the Maximum Claim Amount is and also give a bit of information about what a “Principal Limit” is and why the “Expected Interest Rate” and not the Note rate is used to calculate the amount of funds an applicant may receive from their reverse mortgage.

March 8, 2019 Reverse Mortgages No Comments

Reasons For Using a Reverse Loan

I am often asked why seniors get a reverse loan, there are various reasons and different situations where it becomes the best option, and over the years I have encountered the most common reasons and they tend to be the same ones each time I meet with a client.

The number 1 reason is that seniors simply don’t have enough money every month to cover their ongoing expenses and especially since services, utilities, food, insurance, and medical care have increased but not their income and they may be burdened with a mortgage payment and using their savings to pay it each month.

The number 2 reason is for unexpected and major expenses. Lately, I am meeting with families who can’t afford to pay caregiving expenses, due to a major medical event and they are draining the money from their savings and investments to cover the fees and are concerned about running out of money.

Another unplanned expense might be home repairs. Typically it is a very expensive plumbing repair or a new roof for their home. Quite often there is a great deal of deferred maintenance and now repairs have become necessary and can no longer be put off or delayed.

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The number 3 reason, is they want to remodel their home and make it more “senior friendly” as they age and plan to continue to live in their home. It could be remodeling a bathroom or kitchen to make them easier to maneuver in and make things easier to reach if someone is in a wheelchair and of course other considerations.

And the number 4 reason, is they simply want more money to enjoy their life. They may want to travel, purchase a second home using the reverse loan money towards that purchase, or simply to have the peace of mind, that they will not be financially restricted because they will have enough money to meet their personal needs.

A reverse loan can be used for many different reasons, but these are the ones which are the most commonly used by seniors and their families to solve a worry or problem.

February 19, 2019 Social Security No Comments

Living on Social Security

Well, that’s an interesting thought, because in reality no one can financially “thrive” or survive on the income they may receive from Social Security. It is unrealistic. But for many seniors, it is their only income and after Medicare and taxes are deducted, the amount left over is not very much.

This year 2019, saw a bump in the amount of funds seniors are entitled to via the COLA or “cost of living adjustment” and that in of itself is laughable. It comes out to be on the average $39.00 more each month. Essentially it does not make an impact on the cost of living and the monthly expenses that continue to increase.

Fuel, food, utilities, medical prescriptions, medical care, home maintenance, insurance premiums for homes and or medical coverage. And the list goes on. Plus there are always those unexpected expenses that appear when one can least afford them.

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A solution for seniors would be to utilize funds from a government-insured reverse loan to cover the financial shortfalls, maybe eliminate a mortgage payment freeing up additional cash flow and not constantly worrying about how they are going to get through each month without running out of money.

If you were to do a survey of the senior community and asked each one of them, what is their biggest worry, it wouldn’t be health problems, but outliving their savings and having no money to take care of their lives.