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 residence for life.  Title remains in your name or the name of your Living Trust.  Just as in the past, you will continue to be responsible for your home's maintenance, your own property taxes and homeowners insurance.

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

Your Spouse (as long as they are a HECM co-borrower) will also maintain ownership of your home and can continue the HECM Reverse Mortgage, even after your death.  The HECM Reverse Mortgage becomes due and payable after the death of all HECM borrowers. 

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.  All equity, along with your home’s appreciation, will pass on to your heirs according to the terms of your will or Living Trust.

The Government’s FHA insurance program protects you, your heirs, and your estate from owing more than your home’s value, which means that no assets other than your home must be used to repay the debt whenever you, your estate or your heirs decide to sell the home.

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.  In some cases heirs have been given almost two years to find a solution.

CHAPTER NINE

H.E.C.M. COSTS

 

Almost all Reverse Mortgage 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.

OUT-OF-POCKET COSTS

The only out-of-pocket costs are:

(1) The fee charged by the HUD-approved housing counselor.  (Typically $125 but can be waived by the counseling agency if you meet certain financial qualifications.);

and 

(2) The fee to appraise your home.  (Usually ranges from $400 to $550, depending on your area.) 

The remaining costs can all be financed.

ORIGINATION FEE

The Origination Fee on HECM Reverse Mortgages is limited to:

2% of the first $200,000 of your home’s value;

plus

1% of the amount over $200,000. 

The minimum Origination Fee that a lender can charge is $2,500 and the maximum Origination Fee is $6,000.  
 

FHA INSURANCE

The FHA Insurance Premium on HECM Reverse Mortgages is 2% of your home’s value or of the FHA HECM loan limits, (whichever is less) and 0.5%, which is added to the interest rate after closing.

 

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-adjustable or annual-adjustable 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 on a Reverse Mortgage until the end of the loan.  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 can be adjustable or fixed.  Adjustable rates 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.  Many HECM Lenders now offer fixed rate HECM Reverse Mortgages, but fixed HECMs typically require you to receive all your proceeds as a lump-sum.

ANNUALLY-ADJUSTABLE

Choosing the annual-adjustable H.E.C.M. means that the rate will change once each year.  Changes in this rate are limited to a 2% adjustment per year and a 5% lifetime adjustment cap.

MONTHLY-ADJUSTABLE

Choosing the monthly-adjustable H.E.C.M. means that the rate will change once every month.  Changes in this rate are 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 most, if not all, Lenders 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 NOT assist in scheduling your counseling session.

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.

HECM 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 and HECM guidelines. 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 Reverse Mortgage 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 http://www.aoa.gov/AoARoot/Index.aspx for many programs available to seniors.