getting old and running out of money
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.
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.
Generally, in spite of the articles and television commercials about reverse loans, I have found that many people are still quite confused about reverse mortgages and do not understand that they are just like a regular home loan, with the exception there are no mortgage payments to be made by the borrower.
And what I find very surprising is how many professionals, such as traditional Loan Officers, Bankers, CPA’s, Estate Planning attornies and Financial Advisors are very uninformed, and are not qualified to provide their clients with accurate information if their client asks them about it.
This is unfortunate because quite often seniors are relying on them for professional advice and sometimes the professional simply gets it “wrong” and ends up possibly giving them very bad advice.
For a senior who is attempting to learn about the loan and whether or not it should be considered as a possible source of additional funds, it leaves them without too many reliable sources of correct information. I quite often suggest that they utilize the counseling that is provided by HUD-approved Counseling agencies throughout the country and sometimes it can be done in person.
Part of my consulting service provides them with several National agencies and 10 that are within California. They can call any one of them and set up a counseling appointment that can be done over the telephone and learn about reverse loans.
The Counselor provides accurate information and answers the individual’s questions or concerns about them. At the end of the session, the Counselor will mail a HUD Counseling Certificate that is viable for 6 months.
If the seniors decide to apply for a reverse mortgage, they will give a copy of the Certificate to the Loan Officer to verify that they have been counseled. This is a HUD regulation and provides a layer of safety for seniors and no one can apply for the loan without having received the counseling.
Speaking with a HUD-approved counselor is a great resource to get questions answered and not end up having a salesperson from a Lender calling them constantly and pressuring them to apply for the loan.
In closing, if anyone who is reading this and would like to have a copy of the Counseling list, just send me an email requesting it and I will provide it to you.
And I will not pester you to apply for the loan.
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.
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.
California obviously has the most expensive properties in the country and a very high rate of citizens who are seniors but are carrying mortgages on their homes which are preventing them from retiring due to mortgage debt.
Many working seniors would like to retire but they can’t because of the ongoing mortgage payments and sometimes they find themselves withdrawing funds from their retirement investments to make the payment each month.
And depending on how many years are left on the mortgage, many are concerned about running out of money to make the payments and the other monthly obligations.
The average home value in California generally exceeds the HUD Lending Limit that is currently at $679,650 and if a homeowner has a home with a great deal more equity than the FHA HECM would allow them to withdraw, then a Jumbo reverse loan would be an additional option for consideration.
There are many new Jumbo loan programs to choose from that are superior to the FHA HECM in many aspects and are considerably less expensive in regards to fees. Here are some highlights and are subject to change in the future.
- Maximum loan amounts to 4 MM
- Fixed rates or a LOC
- 2nd T.D’s for those who would like access to their equity but currently have a 1st T.D. in place with a favorable interest rate they wish to keep, preserving more of their equity. This option can also be used as a 1st T.D.
- Origination fees vary by the loan choice but are “none” to either 6K or 8K maximum.
- No Mortgage Insurance Premiums.
- Non-Recourse Loan. The borrower continues to own their home. No equity sharing or pre-payment penalties. The property will go to the heirs of the borrowers when they (the borrowers) have passed away.
- Can be used to purchase a home. “Right-Sizing/Down Sizing”.
- No payments are required other than the borrower must continue to pay property taxes, Homeowners Insurance, and HOA fees and keep the property well maintained.
- No loan terms.
- Borrowers must be at least age 60 or 62. It depends upon the loan choice to determine the minimum age.
When I first started in the reverse loan industry over 17 years ago, there was only one loan option at the time. And it was the FHA Home Equity Conversion Mortgage, affectionally known as the HECM. It is a Line-of-Credit and remains the most popular reverse mortgage that seniors apply for.
Initially, there was one interest rate and no other choices, but now there are several different rates that a borrower can select, of course depending upon what is the most beneficial to them and their particular goals. And there are also Fixed-rate mortgages for those who may be sensitive to interest rate fluxations.
And although the FHA loan remains very popular there are additional options for the borrower to choose from, especially if their home exceeds the HUD Lending Limit that as of this writing, is $679,650.00 and they want to access more of their equity than the HECM would provide to them.
So what is the solution to this question when a home’s value is much more than the HUD Lending Limit and especially in those states such as California where the average home value is quite often above 1MM?
A Jumbo reverse loan of course. And in the last few years what started out as a single offering, has developed into several options allowing more benefits to a senior homeowner.
My next post will share some of the details about them, how they function and whether or not they are always the best choice for a senior who is considering a reverse mortgage.