REVERSE MORTGAGE 101

Reverse Mortgages explained:

A Reverse Mortgage is a loan available to seniors (62 and over in the United States) that allows the homeowner to release the home equity in the property in to funds as one lump sum or multiple payments. The homeowner's obligation to repay the loan is deferred until the owner passes on, the home is sold, or the owner leaves the home permanently (i.e. into aged care).

In a typical forward mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after 30 years the mortgage is paid in full and the property is released from the lender. In a reverse mortgage, the homeowner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, then the debt on the property increases each month.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. A reverse mortgage must be the first and only mortgage on the property.

The three types of Reverse Mortgages:

There are three types of Reverse Mortgage plans available today: FHA-insured; lender-insured; and uninsured. Each type differs. A Reverse Mortgage counselor from Reverse Mortgage Calculators can help you decide which type is right for you and which lender offers the program that best meets your needs.

Reverse Mortgage Calculators will work with you and your advisors to help you assess your individual situation and choose the plan that best meets your needs.

FHA - HECM (Home Equity Conversion Mortgage)

· Guaranteed by FHA/HUD

· Flexible Income Payment Option

· Growing Line of Credit

· Maximum Lending Limit - (varies by city and county)

HomeKeeper by Fannie Mae

· Guaranteed by Fannie Mae

· No Line of Credit Growth

· Generally lower closing costs

· Maximum Lending Limit - (varies by city and county)

Cash or Jumbo Reverse Mortgages 

· Generally for homes well over $500,000 (Contact us for availability in your State)

These loans require no income qualification and eligibility is based on age, primary residence and existing mortgage balance. Unlike conventional home loans, Reverse Mortgages have no monthly payments for as long as the borrower lives in the home.

Another feature of these loans is that no matter how high your loan balance grows you never owe more than the home's market value when the loan is repaid.

The greatest benefit of a reverse mortgage loan is that it allows seniors to stay in their home and have access to their home's equity for medical, insurance, home repair or monthly income needs, etc.

There are no restrictions on the use of the funds you will receive.

Payout Options of the Reverse Mortgage:

Senior homeowners have 5 options for the equity payout of their reverse mortgage:

1. Tenure - equal monthly payments for as long as at least one borrower lives and continues to occupy the property as a principal residence.

2. Term - equal monthly payments for a fixed period of months selected.

3. Line of Credit - unscheduled payments or installments, at times and in amounts of the borrower's choosing until the line of credit is exhausted.

4. Modified Tenure - a combination of the line of credit option with monthly payments for as long as the borrower remains in the home.

5. Modified Term – a combination of the line of credit option with monthly payments for a fixed period of months selected by the borrower.

***Seniors should review all the options and costs associated with each plan and payment option to determine which best fits their and their family's needs.

HECM's are the most popular of the three reverse mortgage products currently available and account for some 95 percent of all reverse mortgages. They are available in every state. The FHA HECM and Fannie Mae HomeKeeper have loan limits determined by Fannie Mae guidelines. Cash/Jumbo Account loan products are available for homes with a home value of $500,000 and above.

All plans mandate counseling. The FHA HECM and Fannie Mae HomeKeeper require independent counseling prior to application completion. Counselors are approved by the Department of Housing and Urban Development (HUD) and provide "free" counsel regarding the various programs and their options. Upon completion of this counseling requirement the borrower may proceed with the reverse mortgage if they so wish. There is no fee to talk with a counselor and no referral involved.

Features of most Reverse Mortgages:

· There are no income qualifications.

· The loan is due for repayment when the last borrower permanently moves out, passes on or sells the property.

· Loan proceeds are not taxable and do not effect Medicare or Social Security payments.

· Interest on a Reverse Mortgage is tax-deductible at the time of full loan repayment which is anticipated to be upon the home sale.

· Seniors can reside in a nursing home for up to a year before the reverse mortgage/loan is due. (Extensions are often Granted)

· Record popularity of reverse mortgages among older homeowners are reflected by the fiscal year (FY 2004) that ended September 2004 in which there were 27,000 HECMs made nationwide, an increase of 49% from the previous fiscal year.

· Unlike a home-equity loan, you are not required to make monthly Payments.

· There are no restrictions on usage of the funds received.