INSIDE INFO UNDERSTANDING REVERSE MORTGAGES With low rates in place due to the coronavirus pandemic, Ray Daniel, reverse mortgage specialist with Fairway Independent Mortgage Corp., said he believes now is an especially good time for senior homeowners to look at reverse mortgage options. Reverse mortgages allow homeowners to convert part of the equity in their homes into cash without having to sell the house or pay additional monthly bills, according to the Federal Trade Commission website. With this loan, if the balance is more than the home is worth, heirs do not have to pay the dierence. But if heirs sell the home, the lender will take the proceeds from the sale as payment on the loan, and the Federal Housing Administration insurance will cover any remaining loan balance, it said. Daniel said there are several misconceptions when it comes to reverse mortgages with the biggest being who owns the home. He said even with the mortgage, the senior continues to own the house throughout their lifetime, and it continues to be in their name. “[Homeowners] can do with it what they want, after they close on the reverse mortgage,” Daniel said. “If ve years later they decide they need to move and be closer to one of their children or grandchildren, they can sell it.” In addition, qualication requirements include age, credit and income, among others. However, there are some cons that come with reverse mortgages including added fees for closing costs and the potential for a reduced equity on the home over time, something to consider for those planning to leave the home for their children and grandchildren. In the case that heirs want to keep the home instead of selling it, the loan must be paid o with another source of funds, but heirs will never have to pay more than the full loan balance or 95% of the home’s appraised value, whichever is less, according to the FTC website. Even so, Daniel said only about 1.5% of adult children inherit a parent’s house and move into it. “If you get a reverse mortgage, that’s going to reduce that amount [of equity], but that amount that an owner took out to live their life they didn’t have to take it out of their savings account or stocks or bonds or investment account,” Daniel said. “So, their investment accounts are larger by the same amount they took cash out of their house.”
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WHAT IS A REVERSEMORTGAGE?
Reverse mortgages allow homeowners, who are often near retirement, to convert part of the equity in their homes into cash without having to sell the house or pay additional monthly bills. Most, but not all, reverse mortgages are federally insured through the Federal Housing Administration’s Home Equity Conversion Mortgage Program.
PROS AND CONS
Reverse mortgages are not recommended for everyone. Here is a look at some of the pros and cons of this program.
Loan repayments will not be required until: REPAYMENT REQUIREMENTS Last living borrower dies; Last living borrower no longer lives in the home as their principal residence including moving to a nursing home or assisted- living care facility; or Borrower chooses to sell the property. The equity of the home decreases Fees associated with the loan are generally higher than with other nancial products; ask lenders about options available Balance of the loan increases over time as does the interest on the loan and the fees associated
Maintain ownership of the home More cash on hand to live in retirement
No mortgage payment during the life of the loan Neither the homeowner nor the heir are liable for any amount of the mortgage that transcends the value of the home
Qualications for borrowers to apply for a reverse mortgage include:
Must be age 62 or older. For those in a couple, both must be at least 62 years old; Must live in home as a primary residence for more than 6 months out of the year; Must own the home outright; Must not be a delinquent on any federal debt; Meet basic credit and income qualications; and Never miss a monthly payment as owners are still responsible for maintenance, taxes and insurance as long as they occupy their home.
SOURCES: CONSUMER FINANCE PROTECTION BUREAU, WWW.REVERSEMORTGAGEALERT.ORG, FAIRWAY INDEPENDENT MORTGAGE CORP., FEDERAL TRADE COMMISSION, U.S DEPARTMENT OF HOUSING AND URBAN DEVELOPMENTCOMMUNITY IMPACT NEWSPAPER
TRACKING REVERSEMORTGAGE RATES
*LATEST DATA AVAILABLE AS OF MAY 18
Texas reverse mortgage rates from the HECM program are reported each month. Below is the average rate for xed and adjustable rate loans over time.*
0 1% 2% 3% 4% 5%
March 2015 March 2016
March 2019 March 2020 March 2021
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