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The Reversing Trend

By Valerie Thelen, Staff Writer

(Page 2 of 4)

Payments: The money can be paid to the homeowner in a variety of ways—all at once, in monthly cash advances, through a line of credit, or a combination. The line of credit is the most popular option as it allows the homeowner to decide when and how much of the cash they want paid to them.

Payoff: No payments are due while the mortgage is outstanding. The loan must be repaid when the homeowner no longer occupies the residence, whether because of death or moving away. The amount owed can never exceed the value of the home; and if the home is sold for more than the value of the reverse mortgage, the extra money goes to the individual or their estate. 

Red flags: There are changes a homeowner could make that would affect the security of the loan. These include renting out part or all of the residence, adding a new owner to the title, changing the zoning classification, or taking out additional, new debt against the home. A homeowner in a reverse mortgage should ask their loan advisor before doing any of these. Current mortgages: Many people, more than 60 percent, are using reverse mortgages to pay off an existing mortgage. This allows a greater cash flow every month for people in their later years of life.

There is one main type of reverse mortgage available to homeowners meeting the criteria already discussed. This is a Home Equity Conversion Mortgage (HECM).  It has been available since 1989 and is insured by the federal government through the Federal Housing Administration (FHA). The maximum loan limit for a HECM is $625,500. If a home is worth more, this is the still the amount a person can receive. If the home is worth less, it will be according to that figure.

There are fees associated with an HECM; but they are capped, making this loan affordable. The first is the Mortgage Insurance Premium (MIP), which is paid directly to the FHA in exchange for guaranteeing the loan.  This also ensures a homeowner will not owe more than the value of the home when the HECM must be repaid. The origination fee is another, capped at $6,000, as well as standard mortgage closing costs.

A main requirement of a HECM loan is counseling. Anyone considering the applying for a reverse mortgage is required to participate because, though a reverse mortgage may be a great option, it’s not for everyone. This helps individuals weigh the pros and cons for their unique situation, get information on interest rates, lending limits, closings costs, fees, lenders, etc.

 

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