Apply for reverse mortgage: The number of seniors who applied for government backed reverse equity loans known as HECMS jumped nearly 20 percent in the first quarter 2009 over the same period last year. Why you ask. We are living in a time when seniors are seeing their retirement assets depleted by market losses, and more than ever before they are seeking solace by tapping home equity .
If you’d like to just go ahead and apply before you read this you can
- Complete our quick online request for a reverse mortgage quote or
- Call 1-877-311-7383
Or of course you can read this post and then come back up here to apply.
For seniors at least 62 years of age who have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment. Sounds good, right.
These special home equity loans are just what they sound like, a mortgage in reverse. Instead of the borrower making payments to the lender, the lender makes payments to the borrower in a number of forms:
- A lump sum cash payment
- A monthly cash payment
- A line of credit (which tends to be the most popular option)
- Some combination of the above
Where does the lender get the money to pay the borrower? From the equity in the borrowers property of course. Well surprise, surprise, surprise.
When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance with a traditional mortgage.
There are three basic types:
• Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
• Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);
• Proprietary products are private loans that are backed by the companies that develop them. In today’s market there are no lenders offering proprietary reverse products. However proprietary products will likely re-emerge in the future with improvements in economic conditions.
The amount of money a senior can receive is is determined by the borrower’s age (older equals more money), the interest rate and the home’s value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county.
The common belief is that reverse mortgages are for older Americans who can’t cover everyday living expenses. While a reverse equity loan does help people in these situations many who choose these loans have adequate retirement income, and savings.
Several of my recent clients who are not squeezing their dollar so tight the eagle is screaming, but choose to reverse their mortgage did so for the following to reasons.
- The chose not to take a loss by liquidating money in a investment account during a down stock market.
- With housing prices following almost everywhere it makes more sense to do a reverse and take out the available equity and put it in an account with a guaranteed growth rate. Here’s the thought process.
- Consider a 72 year old homeowner with a $300,000 property
- If the property loses just 10 percent of it’s value in a year that’s a loss of $30,000
- Now the home is worth $260,000.
- If it loses another 10 percent in year two that a loss of $26,000, for a two year total loss of $56,000 worth of equity.
- Assume this homeowner in year one accessed $150,000 of available equity through a reverse mortgage and put the funds in a reverse line of credit account with a guaranteed 4% growth rate.
- Instead of taking a loss on the entire $300,000 value of the property 50% of it ($150,000) would have appreciated at 4 percent totaling $6,000 dollars in year one.
- Year two would see a 4 percent growth on $156,000.
- If you need further explanation on how this works call 1-877-311-7383.
All HECM products offer a option to put the unused portions of the funds in an account with a guaranteed growth rate. Growth rates at the time of this writing are about 4 percent
Some seniors use the proceeds to supplement monthly income, help their children or grand children, fund travel and investment properties.
Elderly borrowers will have to consult with a HUD Counselor, this is a requirement. Counseling agencies are allowed to charge a max of $125 for their service. Some agencies offer hardship waivers for seniors who can not afford to pay the fee. Additionally some lenders allow this fee to be financed into the loan so that it does not have to be paid up front. The only other out of pocket cost is the appraisal fee which is normally about $450.
