Reverse Mortgage

A Reverse Mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. Reverse mortgages are only available to homeowners 62 and older, and the loan is repaid from the proceeds of selling the home.

This web page is designed to explain the reverse mortgage loan, the process of getting a reverse mortgage, and the pros & cons of the instrument. It is in no way to be considered an endorsement of the product.

Here's a Janury 26, 2012 article from the Mail Tribune featuring Housing Director Linda Cade: Money in Your House

From the NCOA(National Council on Aging) newsletter dated June 6,2011:
Four Reasons Why Reverse Mortgage Counseling Matters

Frequently Asked Questions (from www.hud.gov)

1.
What is a reverse mortgage?
2. Can I qualify for FHA's HECM reverse mortgage?
3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
4. What types of homes are eligible?
5. What's the difference between a reverse mortgage and a bank home equity loan?
6. Can the lender take my home away if I outlive the loan?
7. Will I still have an estate that I can leave to my heirs?
8. How much money can I get from my home?
9. Should I use an estate planning service to find a reverse mortgage?
10. How do I receive my payments?

 1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA's HECM provides these benefits. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan. You can contact our agency to provide the required Reverse Mortgage Counseling at 541-779-2273.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.

4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5.What's the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?
No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than the value of your home at the time you or your heirs sell the home.

7. Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.

8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You can use an on line calculator like the one on the AARP website to get an idea of what you may be able to borrow.

9. Should I use an estate planning service to find a reverse mortgage?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HUD-approved housing counseling agencies are available to provide information, counseling, and a free referral to a list of FHA-approved lenders.

10. How do I receive my payments?
You have five options:
• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home.
• Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.


To print a copy of the FAQ's, click here

Pros:

  • Pay off existing mortgage, HELC, liens, deferred mortgages, arrears or deferment of property taxes, and other debt placed on home.
  • Allows borrowers to pay for help to keep them in their home.
  • Credit is NOT a qualifying factor.
  • Payments are deferred unit the last surviving borrower sells, vacates home, dies or violates the terms of the loan.
  • Provide a credit line that grows at about the same rate as the borrowers are charged for interest. (Note: this depends on reverse mortgage product). Funds in the credit line are NOT considered a “liquid asset”.
  • The borrower has quite a few options as to how they want to access the funds from their credit line.
  • There is a “non-recourse” limit on the loan, which means the lender cannot collect more than the value of the property at the time the loan is called in.
  • In Oregon, the borrower may apply for a property tax deferment (if they qualify) AFTER they close on the reverse mortgage.
  • Even if all the equity is used or exceeds the home value, the borrower may remain in the home.
  • A reverse mortgage maybe refinanced if the home appreciates and/or lending limit increases.

Cons:

  • Borrowers must qualify by age and home must have enough equity to pay fees and any other liens on home.
  • The most popular HECM is a monthly adjustable reverse mortgage with a 10% cap over the initial (starting) interest rate.
  • Costly, especially if used as a short-term solution.
  • Uses equity in the home (rising debt / lower equity).
  • May not cover a negative cash flow problem.
  • The borrower(s) is still responsible for property taxes, hazard insurance and upkeep of property.
  • Must be borrower’s main residence and part or all cannot be rented.
  • Some properties do not qualify (mobile homes of a certain year, manufactured homes in a park).
  • Once the credit line is gone, it is gone.
  • The credit line is only for the borrowers, and cannot be inherited.
  • Some loan programs through cities or states that are zero interest, deferred payments loans for repair or modifications of homes may not be awarded if there is a reverse mortgage on property.
  • If only one spouse is on loan, then the remaining spouse or partner is vulnerable.




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820 Crater Lake Ave Suite 202
Medford, OR 97504
Phone: 541-779-2273
Fax: 541-779-6412
Email: info@cccsso.org
Hours: 8:00am - 12:30pm & 1:30pm - 5:00pm