income reverse loans
We can never know what might or could happen in our lives from day to day. Recently it has been the pandemic of Covid-19 that has killed almost 200,000 Americans as I am writing this and the extreme fall-out from it which has created a massive amount of people who have lost their jobs and businesses.
Then there are the weather events. Massive killer fires in the western half of our country and the East and the South have to face more hurricanes and flooding. No one feels safe anymore and if you are a senior, even less so.
And that is why more seniors are seriously considering using a reverse loan so that they have money that is “banked” and available to them no matter what happens.
One example would be they have an insurance claim for damage to their home and the insurance company is fighting with them over it, at least they have money in the meanwhile to take care of their personal needs until they reach a settlement.
Add in isolation for seniors due to Covid-19, and anxiety about money is not a positive situation, but at the least having enough money reduces some of it, and about how to pay for food, care giving and other monthly expenses.
If a senior has been relying on income from being employed to pay their mortgage payment, but now they are unemployed, they could refinance into a reverse loan that doesn’t have a monthly payment.
But reverse loans have a reputation for being expensive, but are they? They have the same costs as a traditional loan, but many people have heard they are expensive, but in truth, they are not.
Now more than any time in the past, is the time to learn about reverse loans, how much money you could receive, and if doing one is your best option to eliminate your worries and fears about the future.
Contact me for a chat about your situation and find out if a reverse loan be of value to you.
I just read the following stunning statement about how much American seniors have in home equity. It is an enormous figure and seems to be growing upwards every quarter, and is now at $7.54 trillion dollars.
But many seniors still have a mortgage on their property and have to make mortgage payments and its become extensively more difficult in the last few months due to Covid-19 and how it has impacted millions of Americans and their savings and retirement funds.
Many American homeowners who are unemployed due to the Pandemic are extremely concerned about making their mortgage payments and have entered into forbearance plans with their Lenders. Their payments will be deferred for a period of time, but depending upon the terms of the agreement, the homeowner might be faced with a balloon payment.
If they don’t have funds, to begin with, how are they going to pay whatever the amount is when it becomes due in a few months?
But if the homeowner is a senior, they can use a reverse loan, pay off the mortgage they have, and not have any more monthly payments. The Title stays in their name, no prepayment penalties and when they pass away, their home goes to their estate.
This is one of those times when it is seriously advantageous to be a senior in America. A reverse mortgage can help mitigate market risks and provide some financial security to them during this very difficult time in our country.
And it is a very intelligent solution to eliminating money insecurities.
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.
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.
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.
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.