CHAPTER FIVE

OPTIONS TO RECEIVING YOUR PROCEEDS

LUMP SUM

If you choose to receive your proceeds in a single lump sum of cash, you may use the cash for any purpose you see fit. There are no restrictions;

LINE OF CREDIT

If you choose the line of credit, the amount in your credit line is not debt and therefore will not incur interest, in fact, it will grow at ½ percent (0.5%) more than the interest you are charged (on the amount you owe).  The growth on your credit-line-fund is an increase in what you were initially eligible to borrow.  It is not interest earned and therefore would not be reported as income.  You may access these funds, as often as you wish, until they are exhausted.  This credit-line-fund option is typically chosen, if you do not wish to borrow all that you are eligible for, at closing;

MONTHLY ADVANCES

If you choose monthly advances you may change the amount and the frequency in which you receive your funds at any time.

CHAPTER SIX

WHO OWNS MY HOME

With a HECM Reverse Mortgage, YOU are guaranteed to retain ownership of your home for life.  Title remains in your name or the name of your Living Trust. 

You may sell, move, or repay your H.E.C.M. at any time you wish with no prepayment penalties. 

Your spouse will not be forced to move, sell, or repay the H.E.C.M. loan.  The HECM Reverse Mortgage becomes due and payable after the death of the last surviving borrower.  After your demise, your spouse or Living Trust will remain owner of your home for as long as your spouse continues living in your home. 

Your heirs will inherit your home.  How they choose to repay the loan is up to them. 

Once the HECM has been repaid, the lender retains no further claims.  Any remaining equity, along with your home’s appreciation, will pass on to your heirs according to the terms of your will or Living Trust. 

In the unlikely event that your home’s value falls below the amount owed on your H.E.C.M.; you, your heirs and your estate are protected by the Federal Government’s FHA insurance program.  Neither you, your heirs, nor your estate will ever owe more than your home’s value.

CHAPTER SEVEN

REPAYMENT

Your HECM Reverse Mortgage must be repaid, in-full, when the last surviving borrower dies.  Upon death, your heir(s) will inherit your home and they must choose how they will repay your debt.  Typically the heir(s) will sell your home, pay off the debt and divide the remaining amount, according to the terms of your will or Living Trust.  If your heir(s) choose to keep your home, they must pay-off the debt with their own funds, loan, refinance or obtain their own H.E.C.M. Reverse Mortgage; depending on what they qualify for and desire.  As long as your heir(s) are marketing the property in good faith, they are typically allowed three-month periods, up to one-year before repayment is required.

CHAPTER NINE

H.E.C.M. COSTS

 

Almost all costs can be financed, that is, they can be paid from the proceeds of your HECM Reverse Mortgage.  Costs include origination fee, third-party closing costs, FHA insurance premium, servicing fees, and interest.  The only out-of-pocket cost is the fee to appraise your home.  The fee for an FHA Certified Appraisal usually ranges from $450 to $550, depending on your area.

 

ORIGINATION FEE

The Origination Fee on HECM Reverse Mortgages is limited to 2% of your home’s value or your county’s 203-b limit, whichever is less, or a $2,000 minimum.

 

FHA INSURANCE

The FHA Insurance Premium on HECM Reverse Mortgages is 2% of your home’s value or your county’s 203-b limit, whichever is less, at closing and 0.5% is added to the interest rate after the first year.

 

OTHER COSTS

Third party closing costs include appraisal fee, title insurance and escrow fees, county taxes and recording fees, inspections/certifications, credit check, flood certification, property taxes, and your homeowner’s insurance.  These costs vary somewhat with the value, state, and county of your home, but typically range from seventeen ($1,700) to twenty-five ($2,500) hundred dollars.

In addition to up-front fees, mentioned above, the following fees are incurred durring the life of your HECM Reverse Mortgage:

 

SERVICING FEE

The servicing fee is limited to $35 a month for a monthly adjustable H.E.C.M. or $30 a month for both the fixed rate and annual adjustable H.E.C.M.s  You choose whether the fixed rate, monthly or annual fits you best.  This does not mean you will have a $35 or $30  monthly payment to make.  Again, you are not required to make any payments.  The servicing fee is simply added to the amount you owe, every month.  On traditional “forward” mortgages, the cost of servicing is added to the interest rate.  You may not have seen this fee before, but you’ve paid it.

  

INTEREST

The interest rate on HECM Reverse Mortgage loans is typically adjustable. This means that the rate can both increase and decrease over time. The lender does not have control nor discretion over what the rate will be or how it will change over time.  Some HECM Lenders offer fixed rate HECM Reverse Mortgages, but require upfront draws.

ANNUALLY

Choosing the annual adjustable H.E.C.M. means that the rate will change once each year.  Any change in this rate must be the same change that occurred in the index it is tied to (usually the  one-year Treasury rate), is limited to a 2% adjustment per year and has a 5% lifetime adjustment cap.

MONTHLY

Choosing the monthly adjustable H.E.C.M. means that the rate will change once every month. Any change in this rate must be tied to the index it is tied to (usually the one-year Treasury rate) and is limited to a 10% lifetime adjustment cap.

FIXED

Choosing the fixed rate H.E.C.M. provides for better predictability of your overall costs, however Lenders typically require that you borrow the entire amount of funds you are eligible for, at closing.

CHAPTER TEN

STEPS

 

From beginning to end, the Reverse Mortgage process can take as little as 5 weeks, but in some circumstances can take longer.

STEP ONE

Decide Whether a HECM is Right for YOU.

With the vast amount of MISinformation that Reverse Mortgages have attracted in the past, it is important to talk with a specialist that can answer ALL your questions.  Meet with an experienced HECM Specialist or Reverse Mortgage Loan Officer that is willing to sit down with you, your family, friends and/or advisors, all wherever you are most comfortable.  Deciding on a H.E.C.M. may be one of the biggest retirement decisions you make and may not be easy to make alone.

STEP TWO

Receive HUD-Approved Counseling.

You must provide a Certificate of Counseling to your HECM Specialist or Reverse Mortgage Loan Officer prior to completing a HECM Reverse Mortgage application.  HUD will allow your counseling to be done via telephone if you prefer.  Your Reverse Mortgage Loan Officer will provide you with a list of all HUD approved counselors in your State.  Your Reverse Mortgage Loan Officer may assist in scheduling your counseling session, if you request.

STEP THREE

Submit an Application.

Schedule an interview with a Reverse Mortgage Loan Officer that is willing to meet with you either in your home, their office, or wherever you are most comfortable.

STEP FOUR

Receive FHA Certified Appraisal.

Your benefits are based on the value of your home, which must be certified by a licensed FHA Certified Appraiser. The appraiser will determine if your home meets HUD requirements. If any deficiencies are found they must be corrected either before closing or within nine-months, for most repairs.

STEP FIVE

Wait for Lender Approval.

This step is simply time consuming.  The lender is responsible to review your file to ensure it meets FHA approval. With the numerous regulations, set forth by the FHA, it is no wonder that this can take a while.

STEP SIX

Sign Final Loan Documents.

Once approved, you will be required to sign, and have notarized, the final loan agreements.  Be sure to ask that this be done in the comfort of your home, as it can be lengthy.  A copy of all documents will be provided at the time of application and again at the time of final signing.

FINAL STEP

Receive Proceeds.

Three days after signing the final loan documents, the proceeds are released from escrow. By law, you must wait three days to ensure you haven’t changed your mind.

CHAPTER ELEVEN

ALTERNATIVES

 

Consider selling and moving. If you cannot picture selling your home, then a H.E.C.M. Reverse Mortgage may be the best solution for you.

If you plan to move in the near future, the H.E.C.M. Reverse Mortgage may not be the best plan.  Consider what repairs are needed.  If you cannot afford to invest into your home so as to receive an appealing sales price, then maybe you should check out a single purpose reverse mortgage.  If one is not available in your area, then maybe a HECM is the correct choice.  Check out www.aoa.gov/eldfam/eldfam.asp for many programs available to seniors.