Reverse Mortgages – The First of the Five Most Important Loan Program

Sep 9, 2011

What are some of the best loan programs available today?

Remember that Knowledge is Key – and we want you to know about all the various loan programs available to you. We want you to choose the loan program that will best serve your long-term needs. 

 Over the next few weeks, we will publish guest blogs written by Christian Durland on:

1. Reverse Mortgages
2. Colorado Housing and Finance Authority or “CHFA” loans
3. FHA 203k Loans
4. USDA Rural Development Loans, and
5. VA Loans

 In the first of the series, we will discuss reverse mortgages because we want you to make the most of the equity you have in your home.  Today, there are more options for retired individuals and couples than ever.  Whether you are looking to pay off bills, would just like additional income to enjoy retirement, or even purchase a new home, a reverse mortgage could be the answer.

 What is a Reverse Mortgage?

 A Reverse Mortgage allows the homeowner to borrow against the equity in their home without repaying the loan for as long as the home is their primary residence and you have equity. If a homeowner is age 62 or older, own and live in their home and owe nothing, have a minimum mortgage balance, or could even be purchasing a new home, a Reverse Mortgage program can help them receive extra income. 

 Why would you consider a Reverse Mortgage?

 The income received through a Reverse Mortgage can be used for a variety of purposes.  Just like a regular mortgage refinance, there are no restrictions as to how the funds are used.

 The homeowner may use the money to:

  • Pay for medical expenses
  • Make home improvements
  • Pay for in-home-care
  • Supplement your retirement income
  • And more……

Reverse Mortgage vs. Traditional Mortgage or Home Equity Loans

A Reverse Mortgage acts differently than a traditional mortgage.  With a traditional mortgage loan or home equity loan, you borrow the money and make monthly payments.  You must also have other qualifying factors in order to obtain one of these loans.

 With a Reverse Mortgage, the lender pays you money, regardless of your debt-to-income ratio(s) or your current income.  With a Reverse Mortgage, you can borrow small amounts – monthly or at other intervals through a line-of-credit.  Payment is required only once, at the end of the loan, when you no longer occupy the home as your primary residence.

Loan Specifications

Eligibility Requirements 

  • The eligibility requirements are quite simple.  There is no income, employment or credit qualifying restrictions
  • Your home must be owned free and clear, or if you have a remaining balance, it must be an amount that can be replaced and paid off with the Reverse Mortgage (with this option, the homeowner is eliminating their monthly payment that their traditional mortgage carries, thus freeing up hundreds maybe thousands of dollars a month in cash-flow).
  • The property must be a single-family or two-to-four unit dwelling
  • All homeowners must be 62 years of age or older and use the home as their primary residence.
  • The home must meet HUD’s minimum property standards.  In some cases, home repairs can be made after closing on the Reverse Mortgage

What determines how much can be borrowed? 

  • The appraised value of the home
  • The age of the youngest borrower
  • The current or prevailing market interest rate
  • The county in which the property is located

 In most cases, the more your home is worth, the older you are, and the lower the interest rate, the more money you can borrow.

Payment Options

Every homeowner has their own unique needs.  Some prefer to receive the entire amount up-front, while others prefer a steady monthly payment to supplement their other source(s) of income.  Regardless of which payment option one chooses, the homeowner is able to adjust their plan as their needs and/or wants change. Here are the most common options: 

  • Line of Credit:  A credit line which the customer can use to withdraw funds as desired
  • Term:  Equal monthly payments for a fixed period of time
  • Tenure:  Equal monthly payments as long as at least one homeowner occupies the home as their primary residence.
  • Lump Sum Cash Advances:  Cash is available to the homeowner immediately.
  • Combination:  An immediate cash advance is available in addition to monthly allotments.

 Loan Repayment

 The loan will be due and payable when the homeowner no longer occupies the property as their primary residence or fails to comply with the loan agreement.

 There is no requirement that the property be sold, only that the loan be repaid in one payment.  This may occur through savings, a new mortgage, or the homeowner may sell the property.

 Interest Rate

 The homeowner has the option of choosing a monthly or annually adjusting rate, or fixed rate.  Rates are linked to the one-year U.S. Treasury Security Rate. If you choose a fixed-rate, all proceeds must be taken out at closing.  The change in the interest rate will have no effect on the loan amount or the advances you can receive.

 Effect on Public Benefits

 Loan proceeds are not considered income and will not affect your Social Security or Medicare Benefits.

Consult your Reverse Mortgage Specialist to see how a Reverse Mortgage advance may affect your eligibility for some other programs. Should you have questions and/or have a desire to learn more about how a Reverse Mortgage could benefit you, be sure to that you contact an expert loan officer who has the required experience and training to offer Reverse Mortgage loans.

Christian Durland, Senior Mortgage Advisor
First Cal Colorado
NMLS#: 269348

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