I’m Thinking About a Reverse Mortgage in Gainesville…
What do I need to know?
If everyone truly understood how reverse mortgages worked, everyone 62 year old and older would have one! A Reverse Mortgage is a fantastic retirement planning tool despite your financial status. Recent economic and market circumstances have left many retirees settling for a retirement that is less than what they had planned. Some are facing serious difficulties just paying for their medication, meeting their responsibilities, or enjoying a rare evening out. It is becoming common knowledge that a Reverse Mortgage is often a great solution allowing seniors to experience a better quality of life in retirement. We can often provide funds for much needed medications or medical expenses, eradicate mortgage payments or other debt, and provide an emergency fund or supply extra income. However, what is often ignored is the possible advantage to the retiree who isn’t struggling with their finances. They are often amazed at the possibilities this retirement tool provides, all with no monthly payment or tax liability. Because the rates are so low and all payments are postponed until the retiree(s) no longer lives in the home, many seniors agree that the benefits of a reverse mortgage more than compensate for the costs. Our reverse mortgage planning specialists are available for a free no-obligation consultation to help you decide if a reverse mortgage is right for you.
What can Reverse Mortgage be Used For?
- Eliminating existing mortgage payment
- Purchasing long term insurance to safe-guard your other retirement assets
- Paying off car loans, credit cards, or other debts
- Health care and medical bill expenses
- College tuition or private school for your grandchildren
- Eating out more often
- Golf or other recreation
- Other investment opportunities
- Nearly anything you want
You can even use a reverse mortgage to purchase a home – see Reverse for Purchase.
What’s the Catch?
Although most people don’t have trouble coming up with a reason to want a reverse mortgage, they end up resisting the concept because it seems too good to be true. Most seniors have learned by experience that “if it seems too good to be true it probably is!” However, the truth is, reverse mortgages are now insured by FHA, a division of our federal government, and have actually been around for almost 50 years. Landmark Mortgage only originates this type of government insured reverse mortgage, called a HECM (Home Equity Conversion Mortgage).The FHA HECM insurance guarantees 3 important things for the reverse mortgage borrower:
- You will be given all of the payments you are permitted to receive under the reverse mortgage agreement. If you select the tenure payment to receive a particular amount for life and your lender goes out of business, the FHA will continue your payments for life.
- You cannot out live your reverse mortgage, even if you pass the point where the home is not worth the balance you owe. The FHA promises you will collect all payments for as long as you live in the home. In addition, the balance can never be collected as long as you are living in the home and keep up with your insurance and taxes.
- You can never be upside-down on your home. Here in Gainesville, we are not new to homes selling for less than what is owed. With a reverse mortgage, you (or your beneficiary) will never be obligated to pay back more than what your home can be sold for. The difference is covered by the FHA insurance. Conversely, with regular credit lines and mortgages, you and your estate can be liable for any balance due beyond the sale price.
You might have heard that you have to “give up your home” to get a reverse mortgage, but nothing could be further from the truth. The reverse mortgage is documented, just as any other type of mortgage, and the balance is due when the home is sold. Although the balance will increase over time because the loan does accumulate interest, there are no required payments and the bank cannot foreclose as long as you live in the property and keep up your taxes and insurance. The reverse mortgage balance must be paid when you sell the property, just like any other type of mortgage, and any residual equity belongs to you or your heirs.
General Borrower Requirements for a Reverse Mortgage
- You must own your property with no mortgage, or with a mortgage no more than 50-70% of the value
- You must live in the property at least 6 months and 1 day each year
- All borrowers must be 62 years of age or older
- You must obtain HUD consumer counseling (we can provide a list of agencies)
- You must not be behind on any federal debt
Property Requirements of a Reverse Mortgage
- Single family home
- Or a HUD approved condominium project (our mortgage planners can help identify whether or not your condo meets this criteria)
- Or a 2-4 unit home where the borrower is living in one unit
- Or a manufactured house that meets FHA requirements
Although there are not quite as many financial requirements to a reverse mortgage as there are with a credit line or regular mortgage, timely payment of these payments might be verified because you are required to maintain taxes and insurance on the property.
Payment Plans Available on a Reverse Mortgage
- Term – Equal monthly payments for a specific period of time
- Modified Term – A combination of set monthly payments for a planned period of time and a line of credit.
- Line of Credit – an available amount that can be used until the limit has been reached. Any unused credit line will rise every year giving the borrower more existing credit. You can learn how much you can be given in a lump sum or line of credit with our reverse mortgage calculator.
- Tenure – identical monthly payments for as long as at least one borrower is occupying the residence as their primary home.
- Modified Tenure – A combination of scheduled monthly payments and a line of credit.
For a minimal fee, payment plans can be changed even after the loan is closed. The quantity you can receive either in a line of credit, lump sum, or monthly payment depends on the existing interest rate, the age of the youngest borrower, and the appraised value of your home (not to surpass $625,000). That is why, instead of your credit score, we ask for your birth dates in our reverse mortgage calculator.
Reverse Mortgage Costs
The majority of the closing costs related to your Reverse Mortgage can be incorporated in the financing so you do not have to pay anything out of pocket. These costs include:
Third Party Charges – You will have very comparable costs to that of a regular conventional refinance including inspections, recording fees, appraisal, mortgage taxes, title search, insurance, surveys, credit reports and other fees. Most of these can be paid from the loan proceeds. Usually a loan application is collected at the time of application to cover credit costs and appraisal.
Origination Fee – This fee is how Landmark Mortgage Planners gets paid for our services. This fee is capped at 2% of the first $200,000 and 1% of any amount over 200,000, with a minimum of $2500 for homes under $125,000.
Mortgage Insurance Premiums – This is for the insurance that the FHA uses to fund the guarantees of your reverse mortgage loan. The premium for the standard HECM is 2% of the appraised value of your home, and is paid to FHA. You can finance the mortgage insurance premium as part of your reverse mortgage loan. Although there is a choice to only pay 0.5% of the appraised value for MIP, the quantity you are permitted to draw or access is considerably reduced.
Servicing Fee – This charge is for the customer services related to your account and is normally $30/month. This is not a fee that you must pay out of pocket, however an amount is reserved at closing for payment of this fee. Any unused portion of this reserve is returned to the reverse mortgage borrower when the loan is paid in full.
Rates – Rates differ from plan to plan. We show a selection of programs on our reverse mortgage calculator with a variety of rates to pick from.
Finally, if you are still undecided you should consider this: If the following were true would you invest in this bank?
- You could invest and later make withdrawals, but the interest would still accumulate based on your original investment.
- The account is guaranteed to make all agreed payments to you even if it exceeds your balance without liability to you or your heirs – all backed by insurance.
- Withdrawals are tax free.
- There are no penalties for withdrawals.
Your home combined with a reverse mortgage is this exact investment. When looked at from this prospective, a reverse mortgage makes a lot of sense. Meeting with our reverse mortgage specialist can help answer all of your questions.