A reverse mortgage product, arguably worthy of a low profile in the past, has changed significantly over the past decade and should no longer be “dangerous” for seniors looking for retirement funding options. This was reported by Linda Leitz, a member of the Standards Resource Commission and the Certified Council for Financial Planning, in a column published by The Gazette of Cedar Rapid, Iowa.
“[T]”The reasons for the hatred of reverse mortgages have been mitigated or eliminated entirely, and the FHA and HUD are even regulating many of these proposals,” Leitz wrote for the newspaper. “Nathan Johnson, Reverse Mortgage Lending Specialist, warns that if a lender gets a title deed,” this is not today’s reverse mortgage, “and he recommends that you find another reverse mortgage.”
Explaining how reverse mortgages work for the newspaper audience, Leitz highlights the differences in loan yields between younger senior borrowers and their older counterparts.
“The size of a reverse mortgage loan depends on the age of one of the borrowers and the assessed value of the house,” she says. “The borrower – or at least one of the borrowers, if it is a couple – must be at least 62 years old. The older the borrower, the greater the percentage of the appraised value the reverse mortgage can provide. For example, a 62-year-old man can claim 45% of the appraised value of a house, while an 82-year-old man can claim 65%. The amount of the advance will also be after the fees and costs of closing the deal. “
She also highlights other common misconceptions among senior borrowers and points out the difference between something like a Home Equity Conversion Mortgage (HECM) and a Home Equity Line of Credit (HELOC).
“The interest rate can be floating or fixed, with fixed rates currently in the range of 3% to 5%,” she says. “Reverse mortgages are not like [HELOC], which is often in addition to the primary mortgage. And most lenders will not provide a home secured home loan with a reverse mortgage. Reverse mortgages are usually for primary housing rather than a holiday home or rental. The lender will likely require the borrower to confirm that the home is the primary residence at the time the mortgage is issued, and may require periodic confirmation that it is still the primary residence. ”
Particular attention is paid to the absence of the right of recourse to reverse mortgages when a family member will not “harass[d]»To pay off the loan balance after the borrower dies or decides to move out of the home secured by the loan.
“There are several main types of reverse mortgages,” she says. “It gives you the revenue once. Another provides a line of credit. And some back-up mortgages provide both. A back-up mortgage can pay off an existing mortgage or provide cash flow or investment funds. ”
Leitz plans to examine the types of borrowers who can benefit most from HECM in the next column. Read current part in The Gazette.