Home Equity Conversion Mortgages (HECM) or Reverse
mortgages, as they are more commonly known, have been offered in the United States for
nearly 50 years and, yet, they remain a mystery to most of the public – who
have been discouraged by the myths surrounding these useful cash flow tools. While Reverse Mortgages are certainly not for
everybody, they do fill a need for many of today’s Seniors. Fortunately, third party counseling ensures
that applicants fully understand the benefits and costs of reverse Mortgages so
that they can be properly educated consumers.
Reverse mortgages are available to homeowners over 62 years
of age. The Maximum Claim Amount (think
of Loan To Value of a typical mortgage) can be as high as 77.6% of the
appraised value of the home, depending upon on the age of the youngest borrower
and the interest rate in effect.
FHA Insures Reverse Mortgage up to $625,000 and there are
private sources to insure loans above that amount. Reverse mortgages are available in Fixed and
Adjustable rate products and can be drawn down as lump sums, in monthly
installments as a Line of Credit or in
any combination.
The homeowner retains
ownership of their home, with a Reverse Mortgage, until the property is sold,
at which time the payoff is limited to the lesser of the mortgage balance or
95% of the payoff – meaning the borrower can NEVER owe more than the hone is
worth at the time it is sold! The
requirements of the homeowner are to remain in the home, pay their property
taxes and maintain and pay for homeowners insurance.
The top five Reverse
Mortgage Myths:
1.)
If a homeowner takes out a Reverse Mortgage, the
Lender will own their home
False!
Ownership REMAINS with the borrower or their heirs.
2.)
Only poor, Desperate or low income Seniors get
Reverse Mortgages
False!
Reverse Mortgages are ideal instruments for Seniors who have substantial
assets tied up in their homes or those that simply want to eliminate their
monthly mortgage payment.
3.)
Reverse Mortgage Brokers/Lenders pressure
Seniors to buy additional financial products
False!
It is considered unethical in most states and illegal in some for a
Reverse Mortgage originator to sell additional financial products while
originating a Reverse Mortgage.
4.)
The
Borrower’s children will be responsible for repayment of the loan
False!
The loan payoff is limited to the LESSER the loan balance or 95% of the
value of the home. The heirs have six
months, with two three month extensions (12 months total) to sell.
5.)
Homeowners cannot qualify for Reverse
Mortgages because of limited income or poor credit.
False!
FHA is FAR more concerned with
the age of the borrower and the value of the home than they are in income and
credit. In fact Seniors can use Reverse
Mortgages to avoid bankruptcy or foreclosure.
That puts to rest many of the myths, mysteries and
misconceptions of Reverse Mortgages.
Feel free to call us today at 215.917.3937 to answer any other questions
you might have.
