Benefits of a Reverse Mortgage

By
Mortgage and Lending with The Mortgage Market of Delaware

 

 

Benefits of a Reverse Mortgage

Over 12,000 Americans turn 62 every day. One of the biggest concerns of those retiring from the workplace is how to maintain their lifestyle and manage their finances. Many people in this demographic prefer to continue to live in their own home and age in place.

One way is to utilize a Reverse Mortgage, otherwise known as a Home Equity Conversion Mortgage (HECM). It is a financial tool insured by FHA.

If you are 62 years of age or older and have sufficient equity in your home you may be able to feel more at ease with being able to stay in your home and have enough cash flow to enjoy the retired life you have been dreaming about.

Most borrowers use 60% of their principal limit during the first year. This amount can be higher if there is an existing home loan or federal debt to be paid off.

There are provisions in place to allow a qualified non-borrowing spouse to stay in the home and defer repayment when the borrower passes away.

The borrower’s credit, assets and income are reviewed to make sure the home maintenance, property taxes, home owner’s insurance, etc. can be easily managed. If there is some doubt, an escrow account can be set up for this purpose.

A Reverse Mortgage can be a great solution for an aging home owner who has gained a significant amount of equity and is concerned about having sufficient income to live comfortably.

With the Reverse Mortgage, the home owner can access a portion of their home’s equity to cover living expenses and not have to touch their investment savings.

The loan can be structured as a fixed or adjustable interest rate. The fixed rate loan product is used when the funds are disbursed as a single lump sum payment. Borrowers can choose to receive a monthly payment or a line of credit with an adjustable rate reverse mortgage.

The main benefit of using a reverse mortgage is that there are no housing payments to be made. When the reverse mortgage is used to pay off a current mortgage, it provides relief from having to pay the monthly principal and interest payment.

The borrowers only pay the property taxes, homeowners insurance, home owner’s association fees, etc. with a reverse mortgage.

The reverse mortgage is not required to be paid off until the borrowers die or move out of the home.

Borrowers do go through a counseling session to learn about the loan product so they can make an informed decision. This can be done over the telephone.

There are only two out of pocket expenses when obtaining a reverse mortgage. An appraisal to find out the value of the home will cost between $400 and $600. This is paid directly to the appraisal management company. The other fee is for the counseling session which is an estimated cost of $125 and it is paid directly to the counseling agency.  

There will be the typical mortgage closing cost fees including attorney fees, title insurance, recording fees at the courthouse and credit report. The initial FHA mortgage insurance premium is added to the loan amount. It is 2.5% of the home’s appraised value if you draw more than 60% of the available principal limit and .5% if it is less than 60%.

Lenders charge an origination fee to process, underwrite and close your loan. This is normally 2% of the first $200,000 and 1% of the remainder.

You remain the owner of your home when you have a reverse mortgage. The deed is in your name.

When you think about it, a reverse mortgage does make a lot of sense. You have built up equity in your home which is a great asset. Why not use it to your best advantage?

No mortgage payments and the funds left in the line of credit earn interest. You get to stay in your home and enjoy it. When you weigh the cost of living in an assisted living facility vs. paying for home care visits, you’ll find that staying in your own home makes a lot of sense.

It is best as with any financial decision to learn all you can about a reverse mortgage before applying for one.

Article written by: JoAnn Moore, Licensed Mortgage Professional, NMLS #165477, The Mortgage Market of Delaware, LLC, 34011 Wescoats Road, Unit B4 Savannah Point, Lewes, DE 19958. 302.855.1306, 302.236.1229, MMODJoAnn@aol.com    

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Rainer
355,071
Raymond Denton
Homesmart / Evergreen Realty - Dana Point, CA
Capo Beach Realtor® - www.CapistranoBeachHomes.com

It is 2.5% of the home’s appraised value if you draw more than 60% of the available principal limit and .5% if it is less than 60%.

 

I thought it changed to 2% last October, JoAnn, regardless of the 60% threshold.

Jun 08, 2018 02:49 PM #6
Rainmaker
1,858,289
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

This could prove to be a huge part of people's Retirement funds !!!!

Jun 08, 2018 03:20 PM #7
Rainmaker
2,506,633
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

This agent can make this work and give peace of mind while doing it

Jun 08, 2018 03:20 PM #8
Rainmaker
2,636,301
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

This is good information about reverse mortgages.  I was very cautious about warming up to the idea of them, but now have one and love it.

Jun 08, 2018 05:20 PM #9
Rainer
3,001
Matthew Allen
Reverse Mortgage Funding - Medford, OR
Reverse Mortgaege Specialist

 Hi Jo Ann,

There are several issues with your article.

The initial mortgage insurance premium is a flat 2% of max claim amount (appraised value upto $679,650) regardless of utilization. This changed 10/2/2017.

Not sure where you are getting most borrowers utilize the 60% during the first year. That may be in your own experience.

You can not use the proceeds to pay Federal Debt, which I am assuming you are referring to back taxes.

There is not an escrow account. There is the LESA which is the "Life Expectancy Set Aside" which is kind of like an escrow account. The LESA may be optional or required. It is required if the borrower fails the Financial Assesment. Equity that would have been otherwise available / accessible to the borrower is set aside to pay taxes and insurance based on the borrowers life expectancy. Once those funds are fully utilized, the borrower will need to start paying taxes and insurance on their own.

The funds in the line of credit do not earn interest. The unused funds in the line of credit grow at the current interest rate plus .5%. It is growth, not interest.

Not trying to rain on your parade here. But there are some issues that I would highly recommend fixing in your post.

Jun 08, 2018 06:34 PM #10
Rainmaker
233,858
Dale Taylor
Re/Max 10 New Lenox Illinois - Frankfort, IL
Realtor = Chicago Illinois Homes Townhomes Condos

When I am serving first time home buyers I explain this in my how a home can leverage your future talk.

This helps me help them understand the difference in wealth between renters and homeowners.

I saw an article showing homeowners tend to have about $174,000.00 more wealth because of the equity in their homes.

Right around the time I am eligible to collect my full social security benefit, my mortgage should be zero owed.

This could be a significant retirement option for me if I find the dividend income from my retirement investment savings does not quite meet the lifestyle I have enjoyed before retirement.

Your article is sensational baby, worthy of many reblogs👏🏽!

Jun 08, 2018 06:37 PM #11
Rainmaker
77,146
Bruce Minter
James & Lee Realty - Virginia Beach, VA
One on one - Every step of the way!

Using a reverse to purchase a home can also be done and provide similar benefits. 

Jun 08, 2018 08:23 PM #12
Ambassador
4,109,479
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude

Thanks for the education, JoAnn! I think this is a topic that confuses many...those interested in a reverse mortgage, and their family members!

Jeff

Jun 08, 2018 08:39 PM #13
Rainer
486,884
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

There are many misinformed homeowners who are eligible for a reverse mortgage especially their children because they are either uninformed or misinformed and therefore dissuade their parents from securing a reverse mortgage.

Depending on the circumstances and their goals and objectives, a homeowner that's eligible could get some exciting financial benefits and perhaps dramatically increase their lifestyle.

I just closed a reverse mortgage for a client last week and she is not only extremely happy but excited to use the previous mortgage payments to vacation to Europe and remodel her home. If she lives an additional 10 years, she'll have over $300k of extra cash flow. Are you excited? 

Jun 08, 2018 09:33 PM #14
Rainer
26,381
James Grant
Asheville, NC

Hello, JoAnn, Great information in here. I guess when I get old, I should think about this. Thanks for Sharing and Have a Nice Day!

Jun 08, 2018 09:58 PM #15
Rainmaker
1,494,555
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

It is important to know of all available financial options. Thanks for sharing.

Jun 09, 2018 03:34 AM #16
Rainmaker
2,139,910
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

I'm sure that this will be very helpful to many!

Jun 09, 2018 04:45 AM #17
Rainmaker
401,523
John Wiley
Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

The HECM has a bad reputation for many. It has been around for several years and did not start off with the best guidelines.

Now, an applicant must take a class that spells out all the costs and function of the program.

It is not for everyone, but it could be a life saving measure for others.

A newer version is the HECM for Purchase. This has a lot of potential benefits for those over 62.

Thanks for the post.

Jun 09, 2018 04:54 AM #18
Ambassador
1,937,260
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Very well written and organized JoAnn. I always tell folks to discuss this with a good tax person - or an attorney to see if this would be a good option for their particular situation. 

Jun 09, 2018 07:37 AM #19
Rainmaker
1,574,994
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

Years ago, when these first came on the scene, I tried to interest an elderly widow who couldn't afford to pay for both her medications and nutritious food. Her 4 daughters and their husbands threw a fit and wouldn't let her do it.

Had those kids each pitched in $50 a month she wouldn't have been living in such poverty, but...

I was mightly disgusted.

Jun 09, 2018 11:41 AM #20
Rainer
547,545
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

There is a lot mis-informtion floating out there in the market on reverse mortgages:

If you are 62 years of age or older and have sufficient equity in your home you may be able to feel more at ease with being able to stay in your home and have enough cash flow to enjoy the retired life you have been dreaming about.

Jun 10, 2018 08:36 AM #21
Rainer
72,239
Sharon Mistowski
Horizon Lending Services, LLC - Prosper, TX
Horizon Lending Services, LLC

JoAnn, this is a mighty helpful post! It's certainly an option that's often overlooked, but for those who are lucky enough to be educated by people like you...the benefits and advantages are endless!

Jun 12, 2018 05:20 PM #22
Rainmaker
4,210,863
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

JoAnn, great post, and hope some potential reverse mortgage buyers give you a call.

Jun 14, 2018 05:59 AM #24
Rainmaker
1,349,808
Wayne and Jean Marie Zuhl
Samsel & Associates - Clark, NJ
The Last Names You'll Ever Need in Real Estate

Good information. For a certain population, reverse mortgages make a lot of sense!

Jun 25, 2018 05:25 AM #25
Rainmaker
2,636,301
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

CONGRATULATIONS JoAnn, on having this blog featured in the "FEATHER NESTERS" group!

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Jul 03, 2018 05:20 AM #27
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JoAnn Moore

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