Tuesday, July 1, 2014
Are You Ready for a Reverse Mortgage?
Last month I was thinking of taking a reverse mortgage or an HECM( Home Equity Conversion Mortgage) loan on our residence to supplement my income. I started to get information from Reverse Mortgage companies in our area and nationwide. I was swamped with calls from HECM lenders, but I did received enough information to make a decision whether HECM is now an action for me or later. But before I tell you of my decision allow me to summarize the information I received from the lenders.
1. What is a Reverse Mortgage?
It is simply a government insured home loan that allows you to convert a portion of the equity in your home for cash. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to meet the requirement of the mortgage. You must be 62 or older, have equity in the home and you must live in the home. You retained the title of your home. In general the proceeds of an HECM is tax free. No credit report is needed. You are required to receive 3rd party counseling. Last but not least, the fees are expensive, interest in your loan compounded and you do not get 100% of the equity of your home.
2. How much Can you Borrow?
The amount you can borrow depends on your age, the current interest rate, the appraised value of your home, sales price or FHA's mortgage limits, whichever is less. In general, the higher the value of your home, the older you are, the lower the interest rates, the more cash you may qualify for.
3. When does your loan due and Payable?
The loan must be repaid in full when you pass away or sell the house. The loan also becomes due and payable if,
a) you do not pay your property taxes and hazard insurance
b) you permanently move to another residence
c) you fail to live in the house for 12 months in a row and last
d) you allow the property to deteriorate and do not make necessary repairs
4. Can I have still an estate that I can leave to my heirs?
Upon selling your home, you or your estate will repay the cash you received from The HECM plus interest and other fees to the lender. The remaining equity belongs to you or your heirs. There is a high expense and compounded interest in your loan is incurred. It is very likely that when your loan is due, nothing is left to your heirs.
5. How do I received my monthly payments?
Tenure: equal monthly payments as long as one borrower lives and continues to occupy the property as their principal residence
Term: equal monthly payments for a fixed period of months selected
Line of Credit: unscheduled payments or installments in amounts of your choosing until the line of credit ie exhausted
Modified Tenure: A combination of Line of Credit and Monthly payments as long as you live in the house
Modified Term: A combination of Line of Credit plus monthly payment for a fixed period of months selected by the borrower
The above information is the basic information you have to know first before you sign up for your loan. If you need more details, talked to a reverse mortgage specialist, read the Internet and see the following video.
Personal Note: Based on the information above, I decided not to pursue taking a reverse mortgage because of the high fees and at this time of my life, I still have enough funds from my savings and pensions accounts. In addition, I do not need to deplete the equity of my home at a high expense. Maybe in another four years I might think again of this option when my pensions funds are depleted if I am still alive and kicking.