the Benefits and Disadvantages of Reverse Mortgages.
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Our Utah Reverse Mortgages professionals can answer your questions, help you compare products and, if you choose to proceed with a Reverse Mortgage, guide you through the application process.
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More Information / Utah Reverse Mortgage Articles
Home Values Starting to Rise
I recently read an article that indicated that several places in the midwest were starting to see a turn-around in the value of homes. Instead of staying relatively stagnant, the inventory is starting to decrease which means that supply v. demand will begin to change the direction of home prices.
This is good news for those of you considering a reverse mortgage as the value of the home is a major determining factor of how much you’ll qualify for with your reverse mortgage. It’s a careful balance between trying to wait out the market and simply needing funds or desiring funds to do the things you want to do while in retirement.
Reverse Mortgage Misunderstandings
We often speak with seniors who don’t understand the costs associated with a reverse mortgage and then when presented with the costs are surprised and prior to getting more information choose not to proceed.
I want to make a few comparisons on costs so that the pricing makes more sense. A “regular” mortgage typically has a cost of around 1-2 points in either origination fees or in the case of a “no cost” loan, the fees are basically priced back into the loan in exchange for a higher interest rate.
So, with a “traditional” or non-reverse mortgage, the fees are about the same as what a reverse mortgage costs. Instead of looking at a reverse mortgage from a dollar amount perspective, look at it as an opportunity cost of receiving a significant amount of money to be used to supplement your retirement.
If you’re concerned about the costs associated with a Utah reverse mortgage, you should discuss those costs and work with a loan officer that understands what it is you’re evaluating and can assist you with making a decision that is right for you.
When Does the Reverse Mortgage Loan Need To Be Repaid?
The loan repayment is triggered when the home is sold or is no longer occupied as your primary residence. In a case of more than one borrower, repayment is triggered when the last borrower permanently moves out of the home. Until one of these events takes place, the last borrower may live in the home and not make any monthly mortgage payments to the lender.
Your heirs will not be required to repay the loan. The loan can be repaid by refinancing the existing Utah reverse mortgage with a standard mortgage loan assuming you or your heirs want to keep possession of the home.
Can I Owe More Than My Home Is Worth?
A reverse mortgage is a “non-recourse” loan which means that you, your heirs, or your estate cannot be required to repay more than the appraised market value of the home at the maturity of the loan. If the loan balance exceeds the value of the home, you, your heirs, or your estate will only be obligated to repay an amount up to the current appraised value of the property.
This works well to insure that you aren’t obligated to come up with any additional funds at the maturity of the loan and aren’t putting any extra pressure on family or friends, heirs or otherwise to have to come up with any additional funds.
A Utah reverse mortgage works this way as do reverse mortgages at a nationwide level. Owing more than your home is worth will not be an issue with a reverse mortgage.
Requirements for a Utah Reverse Mortgage
There are no special requirements for a Utah Reverse Mortgage. As long as you have equity in your home, are 62 years old or older, you can qualify for a reverse mortgage.
You don’t need to have income or any special financial requirements including a certain credit score. A reverse mortgage is simply a tool to pull the equity out of your home without having to sell it outright.
If you’re brand new to reverse mortgages, you should speak with both a loan officer by contacting us toll free at 800-893-9540 as well as a 3rd party counselor who will advise you on whether or not a reverse mortgage is right for you and your situation. The counselors you’ll speak with will also advice you on alternatives to reverse mortgages.
We understand that many seniors find themselves in a situation in which a reverse mortgage may be an ideal situation. A reverse mortgage is not for everybody which is the reason we’ll coach you through the process and work with you on finding the right solution for your exact situation. Complete our form on the right side of this page and we’ll contact you with all the information you’ll need to get started.
Can You Still Get a Reverse Mortgage if You Have a Mortgage?
If you have an existing mortgage, you can still qualify for a reverse mortgage. The way this works is that the reverse mortgage must be in the first lien position so any existing debt must be paid off. You can take funds from the reverse mortgage to pay off the existing mortgage or you can also pay off the existing mortgage using other means such as savings or family member / friend assistance, etc.
As an example, if you still owe $50,000 on an existing mortgage and based on your age, home value, and interest rates you qualify for $125,000 with the reverse mortgage, you can take $50,000 from that reverse mortgage to pay off the existing mortgage and still be left with $75,000 to use as you wish.
One other example would be to have $100,000 left on an existing mortgage and qualify for a $100,000 reverse mortgage. From this example, you’d have nothing left after you paid your $100,000 mortgage, but the main advantage here would be the fact that you have no more mortgage payments and your ability to live in your home for the duration is not based on an existing mortgage.
There are a lot of options when considering a reverse mortgage. This is one of the reasons you’ll get counseling from both your mortgage officer as well as a 3rd party independent counselor as mandated by law. If you’re considering a Utah reverse mortgage, please contact use our easy contact form on the right side of this page and you’ll be contacted by one of our courteous, knowledgeable mortgage professionals.
Why Counseling is Important for Reverse Mortgages
One of the best features about reverse mortgages is the mandated 3rd party counseling built into the program to protect the consumers, in this case seniors who tend to be targets for fraud. The counseling insures that you understand the program and review alternatives prior to applying for a reverse mortgage.
Some of these 3rd party agencies that provide counseling are the AARP (800-209-8085), the Money Management International (877-908-2227) and the National Foundation for Credit Counseling (866-698-6322). Counseling is required and can be conducted either face-to-face or over the telephone.
Counselors are required to review alternative options for seniors including housing options, social services, and health or financial alternatives. They must also review other home equity conversion options such as property tax deferral programs. Seniors must also know and understand the financial implications of entering into a reverse mortgage and the tax consequences affecting eligibility and the impact on their estate.
In Utah, we follow these same guidelines and emphasize the importance of understanding the advantages as well as the potential disadvantages of a Utah reverse mortgage.
What is a Reverse Mortgage?
With a reverse mortgage, seniors age 62 or older can convert the equity in their homes into a tax-free income without having to sell the home. With a reverse mortgage, you won’t have to give up title or take on any new monthly mortgage payments. A reverse mortgage is just that… “reversed” in that instead of making payments on a mortgage, the lender makes payments to you.
This is a relatively new product and one that although starting to get more attention is still relatively unknown. To protect seniors, the Federal Housing Administration (FHA) mandates counseling prior to being able to be approved for a reverse mortgage. This counseling is done by a 3rd party so that the counsel is unbiased.
As to the special requirements to get approved for a reverse mortgage, seniors must be 62 or older and must have equity in their home. There are no special income or medical requirements.
Conventional Utah Reverse Mortgages
Many lenders now have “conventional” reverse mortgages that feature several of the same consumer protections but are not insured by the federal government. These types of reverse mortgages do require mandatory counseling and asset protection, meaning the non-recourse feature that limits the amount you owe to the value of the home.
These conventional reverse mortgages are also known as jumbo loans. Unlike the HECM, which is limited in range, the conventional Utah reverse mortgages either have no limit, or their limit is significantly higher, upwards of $3-4 million. For a higher value home, you’ll typically be able to access more equity from a conventional reverse mortgage than you would an FHA HECM.
Conventional reverse mortgage programs typically offer lower upfront costs, compared to HECM. This is especially true if you are taking payment as a lump-sum. The interest rate for a conventional reverse mortgage is a fixed margin above the LIBOR (London Interbank Offered Rate). There are some conventional reverse mortgage products that offer adjustable rates as well as fixed rates.
For additional details on these conventional Utah reverse mortgages, please contact one of our loan officers today for details on this and other programs. We can be reached by phone at 800-893-9540.
Fannie Mae Home Keeper Reverse Mortgage
Fannie Mae is the largest investor of mortgages in the nation and also a major investor of reverse mortgages. This also includes the federally insured Home Equity Conversion Mortgage (HECM).
As an alternative to the HECM, Fannie Mae created the Home Keeper reverse mortgage. This was developed to address issues with individuals with higher property values, condo owners and also seniors wishing to use the reverse mortgage to purchase a new home.
Although Fannie Mae is not a lender, lenders working with Fannie Mae can offer the Home Keeper product to consumers. It is available to home owners in every state including those seeking a Utah reverse mortgage. We typically don’t use this type of reverse mortgage and we’ll go into details about this and why we don’t use this when we get a chance to discuss your options over the phone. We like to include details about the products so you know what’s available.
Property types that are eligible for the Home Keeper reverse mortgage are owner-occupied single family homes, condo units, and units in qualified planned unit developments. Properties held in trust and qualified leasehold properties are also eligible. Co-op units, however, are not an eligible property for Home Keeper.
There is a formula to determine the amount of funds available to the borrower which is based on the age and number of borrowers at the time of the application. It is also based on the adjusted value of the home and the current interest rates.
Fannie Mae’s maximum mortgage limit is $417,000 (as of 2007) which allows the reverse mortgage loans to be significantly higher than the HECM which is limited by locally applied FHA max mortgage limits.
Those that apply for a Home Keeper reverse mortgage may elect to receive the funds as a fixed monthly payment for as long as the borrower occupies the home as a principal residence, or a line of credit, or a combination of both line of credit and monthly payments.
Similar to the HECM, there is a limit to the origination fee of 2% of the adjusted value of the home and a monthly services fee of about $15 - $30. Closing costs similar to a traditional mortgage may also be assessed during the process of being approved for a reverse mortgage.
The interest rate for a Home Keeper reverse mortgage does adjust monthly and is based on an index rate, normally the current weekly average of the one-month secondary market CD rate published by the Federal Reserve. The interest rate will not rise more than 12 percentage points above the initial rate. There is no cap, however, on the monthly adjustment other than the lifetime cap.
You can use the Home Keeper reverse mortgage to purchase a new home in a single transaction which is different than the capacities of an HECM. This single transaction reduces the out-of-pocket cash needed to buy a new home and eliminates any new monthly mortgage payment and helps keep the proceeds from the sale of the old house in your pocket.
As this process would be considered unique to most circumstances, we offer additional consultation and expertise specific to your situation over the phone. We’ll help you analyze your exact situation and provide a custom solution for you. Please contact us at 800-893-9540 and one of our courteous loan officers will be able to assist you with this important decision.
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