While both Reverse Mortgage loans and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. And, to qualify for such a loan, you must meet credit qualifying standards and have a monthly income great enough to make the monthly payments. Additionally, if you fail to make your monthly repayments, you could lose your home.
On the other hand, qualifying for a Reverse Mortgage is easier and you will NEVER have to make monthly payments to the loan if you continue to occupy the home as your principal residence and if all loan obligations are met. You can’t lose your home by failing to make monthly payments because there are no monthly payments to make, however it’s important to note that foreclosure may occur if you do not pay your taxes and insurance and otherwise comply with the loan terms. While both Reverse Mortgage loans and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. And, in order to qualify for such a loan, you must meet credit qualifying standards and have a monthly income great enough to make the monthly payments. Additionally, if you fail to make your monthly repayments, you could lose your home.
Each month your loan balance grows as you take cash advances, make no repayment, and have interest charges added to the amount you owe. The terms of your Reverse Mortgage loan allow for you to NEVER be required to repay this debt until you permanently move from your home as long as you comply with all loan terms.
Once the last remaining borrower has left the home, the servicing department must be notified immediately. It is important to remain in contact with them as they work with you on closing out the loan. Extensions are at the discretions of FHA. The payoff amount would consist of the original loan amount plus any cash advances and all accrued interest, as well as any other advances made to the borrower by the lender.Each month your loan balance grows as you take cash advances, make no repayment, and have interest charges added to the amount you owe. The terms of your Reverse Mortgage loan allows for you to NEVER be required to repay this debt until you permanently move from your home as long as you comply with all loan terms. From the time you leave your home, you or your heirs typically have up to one year to settle the debt with the Reverse Mortgage lender. Extensions out to one year are at the discretions of FHA. The payoff amount would consist of the original loan amount plus any cash advances and all accrued interest, as well as any other advances made to the borrower by the lender.
The total amount you will owe at the end of the loan (your “loan balance”) equals all the cash advances you’ve received, including any that were used to pay loan fees or costs, plus all the interest accrued on these amounts. But, because the loan is a Non-Recourse Loan you will never owe more than the value of the home at the time the loan is repaid. The homeowner will NEVER pay the Reverse Lender a greater amount of money than what the house sells for.
The total amount you will owe at the end of the loan (your “loan balance”) equals
- all the cash advances you’ve received (including any that were used to pay loan fees or costs)
• plus all the interest accrued on these amounts
Because the loan is a “Non Recourse Loan.” you will never owe more than the value of the home at the time the loan is repaid. The homeowner will NEVER pay the Reverse Lender a greater amount of money than what the house sells for.
The out-of-pocket cash cost to you is most often limited to the fee for the required HUD counseling, and the fee that covers a property appraisal (to see how much your home is worth). Based on equity, all the other closing costs can be included in the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe – and pay interest on. The out-of-pocket cash cost to you is most often limited to the fee for the required HUD counseling, and the fee that covers a property appraisal (to see how much your home is worth). Based on equity, all of the other closing costs can be included in the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe – and pay interest on.
- The costs associated with getting a Reverse Mortgage loan are similar to those of a regular conventional mortgage. Typically, Reverse Mortgage loans have a 2% origination fee and a 2% HUD mortgage insurance premium which can be financed through the proceeds of the loan however, depending on the loan type you choose, both these costs could be less. Our representative will go over every loan detail with you and provide a good-faith estimate of the exact costs involved for you.
Other costs commonly charged to a reverse mortgage borrower can include: - Credit report: Checks for any judgments or tax liens against the borrower
- HUD Counseling: Required for all Reverse Mortgage borrowers.
- Flood Certification: Determines whether or not the residence is built on a federally designated flood plane.
- Title insurance: Protect owner and lender against any loss due to disputes over property ownership. ownership of a property – the larger the loan amount, the higher the cost of the title insurance.
- Escrow, Settlement or Closing: Typically includes a title search and any other required closing services.
- Document Preparation: Preparation of all final closing documents.
- Recording: Fees associated with recording the mortgage lien with the County Recorder’s Office.
- Courier: Overnight mailing of any documents between the lender and the title company or loan investor.
Although not a closing fee as such, the service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account. The servicing fee can be monthly.
The amount of the fee is determined by the servicer and may be absorbed by the lender, so what the borrower pays varies. Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside, if there is a one-time servicing fee assessed at closing, is largely determined by the borrower’s age and life expectancy.
Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs. This disclosure is called Total Annual Loan Cost (TALC) and it shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.
If you end up living in your home well past your life expectancy or your home appreciates at a low rate, your TALC will reflect a lower rate (cost). But if you die, sell, or move within just a few years or your home appreciates a lot, the true cost would be higher. There’s no way of avoiding this fundamental risk. You just have to understand it in general, assess the potential range of TALC rates on a specific loan, and decide if it’s worth the advantages you expect you’ll gain from the Reverse Mortgage loan.
In many Reverse Mortgage loan transactions, the immediate family members take on a crucial role as advisors to the transaction process. Most often, the children of the senior are the most trusted advisor when it comes to a senior’s finances. However, a family friend, a trusted advisor, or someone who has a genuine interest in helping the senior party can also be of assistance, especially in the absence of a close family member. It is recommended that the family members or advisors be involved in the initial meetings, the presentation and the HUD counseling service to make sure that everyone fully understands the entire Reverse Mortgage loan process. If you are acting as an advisor to a senior homeowner, there are several things you should know about Reverse Mortgages and how they can help seniors live more comfortably and securely. It’s also important to understand the risks involved, in that the loan balance becomes due and payable if the borrower does not comply with all loan obligations, such as paying property taxes, insurance, and maintaining the home.
In many Reverse Mortgage loan transactions, the immediate family members take on a crucial role as advisors to the transaction process. Most often, the children of the senior are the most trusted advisor when it comes to a senior’s finances. However, a family friend, a trusted advisor, or someone who has a genuine interest in helping the senior party can also be of assistance, especially in the absence of a close family member. It is recommended that the family members or advisors be involved in the initial meetings, the presentation and the HUD counseling service to make sure that everyone fully understands the entire Reverse Mortgage loan process. If you are acting as an advisor to a senior homeowner, there are several things you should know about Reverse Mortgages and how they can help seniors live more comfortably and securely. It’s also important to understand the risks involved, in that the loan balance becomes due and payable if the borrower does not comply with all loan obligations, such as paying property taxes, insurance, and maintaining the home.
- A reliable, proven choice.
A HECM FHA Reverse Mortgage loan is a government-insured financial tool that has helped over 150,000 seniors enjoy better lives. Many safeguards are built into the product to protect seniors from predatory lending practices. - The best of both worlds.
A Reverse Mortgage loan can be the right choice for senior homeowners who need additional cash flow without having to sell their homes to raise cash. With a reverse mortgage, the homeowner can get a monthly payment, a line of credit, a lump sum distribution or a combination of the three, without having to move or give up title to the home. - Liquidity tool.
A Reverse Mortgage loan is an ideal way to create liquidity from a real estate asset. This liquidity can enable seniors to pay bills, make home repairs, retire an existing mortgage (required to get a Reverse Mortgage loan), or to purchase such health-related services as long-term care insurance. - Tax-free cash from a Reverse Mortgage loan.
Since a reverse mortgage loan taps into existing home equity, the proceeds are not taxed as income - Understanding foreclosure risks.
It’s important to understand the risks involved when considering a Reverse Mortgage loan, in that the loan can go into a foreclosure status if the terms of the loan are not followed. The balance becomes due and payable if the borrower does not comply with all loan obligations, such as paying property taxes, insurance, and maintaining the home.
Only you can decide what a Reverse Mortgage loan is worth to you. It probably depends most on what you would use one for. Increasing your monthly source of funds, having a cash reserve (equity line of credit) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life are all advantages that can be achieved through a reverse mortgage. However, in evaluating the worth of a reverse mortgage it may be helpful to consider a major alternative: selling your home and moving.
Consider the following:
- How much money could you could get by selling your home?
- What it would cost you to buy & maintain or rent a new one?
- How much you could safely earn on sale proceeds not used for a new home?
Also, looking into other housing options, comparing housing alternatives first-hand and in-person, may help you decide if a reverse mortgage is best for you. You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find. Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be.
Either way, researching your options will give you a good idea of the overall costs and benefits of staying versus moving. This will give you a better sense of what’s valuable to you. And make it easier to evaluate the cost of a reverse mortgage.
Only you can decide what a Reverse Mortgage loan is worth to you. It probably depends most on what you would use one for. Increasing your monthly source of funds, having a cash reserve (equity line of credit) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life are all advantages that can be achieved through a reverse mortgage. However, in evaluating the worth of a reverse mortgage it may be helpful to consider a major alternative: selling your home and moving.
Consider the following:
- How much money could you could get by selling your home?
- What it would cost you to buy & maintain or rent a new one?
- How much you could safely earn on sale proceeds not used for a new home?
Also, looking into other housing options, comparing housing alternatives first-hand and in-person, may help you decide if a reverse mortgage is best for you. You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find. Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be.
Either way, researching your options will give you a good idea of the overall costs and benefits of staying versus moving. This will give you a better sense of what’s valuable to you. And make it easier to evaluate the cost of a reverse mortgage.