reverse loans simi valley
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.
Covid-19 and Seniors at Risk
It has been a while since I have written anything in my blog, because like everyone else, my life was turned upside down with the pandemic and it’s destructive swath across the world, taking lives, ruining economies, creating fear, anxiety, and uncertainty.
Anyone who had a 401-K, some sort of a retirement plan or at the least, a savings account have seen them dashed, drained away and depleted within days and the Stock Market will continue to reel in uncertainty for most likely, a very long time.
Eventually, we will get through this terrible time, but if you are a senior, you may not have the ability to wait it out until the markets recover and are very worried about running out of money. I am here to say, that this is the one time a senior has an advantage over younger people because they have an option that younger people don’t have.
If a senior age 62 or older, lives in their home (even if they have a mortgage on it), they could apply for a reverse loan. However, too many are afraid of them because they think the Lender will end up owning their home (false), they have to still make payments (false), there is “fine print” to trick them (false) and they are “too good to be true”. (False again.)
- The FHA HECM is the most regulated mortgage in the lending industry, to protect seniors from financial abuse.
- Anyone who wants to apply for a reverse loan must complete telephone counseling with a HUD-approved Counseling Agency.
- There are no mortgage payments, however, the borrower must continue to pay property taxes, Homeowner insurance and keep their home in good repair.
- There are no restrictions on how the borrower uses their funds, except they are discouraged from buying annuities or other investment products.
- They can remain in their home for their entire lives and leave it to their estate.
The reverse loan industry is seeing an increase in loan applications at this time because obviously money from a reverse loan will give them the safety and security they need and take away the fear and anxiety about running out of money.
The loan is safe, well-regulated and an ideal solution for all senior home-owners to consider right now. From the time the HUD Counseling is completed, the loan processing time takes about 45 days, however, it might begin to take longer with the increase in applications.
Although I am located in California, anyone who reads this may contact me if you have questions. I can point you in the right direction for a reverse loan consultant in your state.
Don’t hesitate. If you have a home or Condo and you are old enough, you have this opportunity for financial security. Look into a reverse mortgage. Now.
Payment Choices for Reverse Loans
The FHA Home Equity Conversion Mortgage is a reverse loan and along with its many features for seniors, are different ways they can access their funds in the line-of-credit. They can choose to not take any kind of payment and simply take out some money at the close of escrow, or do a combination of the different options.
- Cash at the close of escrow with a “tenure” payment.
- Tenure payment only
- Modified Term payment and if they want it, cash at the close of escrow.
- Or no payments at all. But payments can be set up later if the borrower wishes to have one at any time in the future, as long as there are remaining funds in their account.
Very few of my clients have ever opted for any kind of monthly payment, but let’s take a look at what a Modified Term Payment is.
The borrower chooses a certain amount of money to be sent to them each month, such as $2,000 for 10 years. Depending on the age of the youngest borrower and how much money is available in their account, they will receive it each month but not for their lifetime.
At some point in the future, it will stop being sent to them, (10 years in this example) but if they still have money in their account, they can set up a new monthly payment, a tenure payment or stop it altogether or request a lump sum. Again, it depends on how much reserve they have in the line-of-credit.
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Every person has their own unique concern or goal and depending on a number of factors, such as paying off a large mortgage, there may not be enough money left in the account to choose a payment option, but at the least, they will have eliminated their mortgage payment and that would become extra income to them each month.
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.