Best Reverse Mortgages

What is a reverse mortgage?

A reverse mortgage is a government-established program to help people approaching retirement. When you pay the mortgage on your home, you are, in essence, buying part of your home back from the bank that loaned you money. Once you have made all your mortgage payments, you own 100 percent equity in the home, meaning if you sold it you would keep 100 percent of the profit, minus paying the real estate agent.

What happens when someone has paid off their home, is retired, and suddenly falls on hard times? How does someone on a fixed income pay for their basic needs and these new expenses?

Reverse mortgages opens up another source of income. This program makes it possible to trade the home equity you own for money. After you take out the money, you may live in your house and never pay back a cent to the company until you die or move. Once you die or move, you or your heirs will often sell the property in order to pay back the reverse mortgage.

Do I qualify?

Individual requirements:

• Must be 62 years old or older
• Must own either all of their property or have a small mortgage payment
• Must be the occupants’ primary residence
• Must not be a delinquent on any federal debt
• Must meet with an approved HECM councillor

Home requirements:

• Homes must be single family or live in 1-4 unit home and occupy one of the units
• Homes must be U.S. Department of Housing and Urban Development (HUD) approved condominium
• Homes must meets FHA requirements

What are my options?

Home Equity Conversion Mortgage (HECM): This is the most basic reverse mortgage package. This program is probably also the safest option. Government regulations ensure the customers are protected.

Home Equity Conversion Mortgage for Purchase (H4P): This is similar to HECM. It is for those who want to buy a new home and use the equity they have in the new home for a reverse mortgage. If you want to buy a new home, you can buy a new house with a higher down payment (which shouldn't be a problem if you decide to sell your old house) and then use the equity in your new house to get the reverse mortgage. People generally do this to buy a more expensive home, and then use part of the money they get from the reverse mortgage to pay off the remaining balance on the new mortgage.

Proprietary Reverse Mortgage: Proprietary reverse mortgages are created specifically by a reverse mortgage company to give different clients better rewards or incentives to join their company. Rather than using the traditional HECM model, these companies offer different incentives, pay plans, or rates to ensure you are getting the best deal for your situation. These deals can be great, but do not have some of the same protections in place as the traditional HEMC model. To explore proprietary reverse mortgages in depth, check out the company links.

How much money can I receive from a reverse mortgage?

The maximum amount someone can recieve on a HECM is $679,650. Although this is the most someone can recieve in a loan, many factors contribute to each individual’s case:

Value of home: The value of the home property is one of the biggest determining factors for the amount of money you can recieve. Simply put, the bigger the house you have, the more money you can receive.

Age: The older you are, the more you can make for your reverse mortgage. A 62 year old will get less money than someone who is 90 years old.

Interest rates: Interest rates are ever changing; ask your provider for the current interest rate. Rates are usually adjustable rates, but some companies offer fixed rates.

Choice of distribution: Though you have the option on how you would take the money out, some options can be better than others. A line of credit tends to give you the highest possible proceeds, but payments come overtime. A lump sum gives you the money faster, just less of it.

What fees are involved?

Almost all of the fees for HECM can be financed and paid from the proceeds of your loan. You will not have to pay for them up front, but the amount available to you will be reduced.

Traditional fees: Those who get a reverse mortgage must be willing to pay property taxes, homeowners insurance, and home maintenance costs.

Origination fee: These vary, but they are all capped by the FHA so no one can go higher than these rates. Many companies will give you rebates or deals, so these fees may be even less.

To calculate the maximum origination fee:

1. If your home is under $125,000 the fee has a maximum cost of 2,500.
2. If your home is between $125,000 and $200,000 the deal is 2 percent of the property.
3. If your home is over $200,000, then the company can charge 2 percent on the first $200,000 and then only 1 percent on anything over that.

If you own a home that is $500,000, you would be charged 2 percent for the first $200,000 and then just 1 percent on the remaining $300,000.

Note: Maximum Origination Fee is $6,000
 
Counseling fee: This fee is totally dependent on the counselor. You should always be informed of the price before setting up a meeting, but the price usually is around $125 dollars.

Third party charges: Closing costs from third parties can include an appraisal, a title search and insurance, inspections, surveys, recording fees, mortgage taxes, credit checks and other fees. These tend to cost between $1000 and $2000.

Servicing fee: These are fees that ensure you are keeping up with your insurance payments and other documents. It costs at most $35 a month, and it may be added to the monthly interest rates.

How do I choose a reverse mortgage company?

You have many options to choose from when looking for the best fit. As you research, make sure to fully explore the different options that each company offers, the deals they are willing to make, and how willing they are to help you find comfort, security, and freedom.