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The Reversing Trend
By
Valerie Thelen, Staff Writer
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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