FAQs
Answers to our Most Frequently Asked Questions
A Reverse Mortgage is a loan that allows people over the age of 62 converts some of their home equity into tax-free cash. With a Reverse Mortgage, clients can choose to receive monthly payments for life, have a growing line of credit or receive a lump sum distribution at closing. The only obligation clients have, is to continue making payments of their property taxes, homeowners insurance, and HOA dues if applicable. With a Reverse Mortgage, clients also retain full ownership of their home.
Not at all. One of the main differences between a Home Equity Line of Credit and a Reverse Mortgage line of credit, is that the Reverse Mortgage Line of Credit is guaranteed. Many people still remember the financial crisis of 2008 where many banks reduced or closed customers’ lines of credit. With a Reverse Mortgage Line of Credit, the bank won’t reduce or close the client’s line of credit due to the Mortgage Insurance that comes with this loan. Let’s take a look at some additional differences: 1) The reverse mortgage line of credit is GUARANTEED to grow. The amount available to the borrower in the reverse mortgage line of credit increases every month by a pre-determined amount, based on the previous month’s credit line balance and the current interest rate. This is a unique, powerful feature which provides the borrower with access to more funds over time.
- A HELOC and a reverse mortgage line of credit are both adjustable rate loans. The HELOC is usually based on the Prime Rate and can increase, without a ceiling, as the Prime Rate increases. The reverse mortgage line of credit is based on the 1 year Treasury Bill index and usually has a cap of 5% above the beginning interest rate.
- With a HELOC, the borrower can usually pay interest only for a period of time (often 10 years) and then the balance must be paid off over 20 years. At the 10 year mark, the monthly payment the borrower must make increases considerably. A reverse mortgage requires no monthly mortgage payments, so there is no danger of defaulting by not making mortgage payments.Often Seniors use their HELOC to supplement their monthly cash flow shortfalls. Sometimes they even get to the point where they have to borrow funds from the HELOC itself to make the required monthly payments. However, this technique is probably not sustainable because sooner or later the borrower is likely to exhaust their credit line. Then what? How will they make the required payments? The more money that is borrowed, the higher the minimum monthly payment will be. And what will happen if interest rates start increasing and therefore, the minimum payment on the home equity line of credit also increases? This is very worrisome. With a reverse mortgage line of credit, monthly mortgage payments are NEVER required.
- In certain (rare) circumstances, seniors who have a large HELOC balance may not qualify for a reverse mortgage because the balance they owe on the HELOC is more than we can lend them with a reverse mortgage.The upfront costs with a reverse mortgage are significantly higher than with a HELOC. If the borrower will be remaining in their home for only a short period of time, a home equity line of credit may be the best option.
- With both a reverse mortgage line of credit and a HELOC, the borrower MUST continue to pay their real estate taxes and insurance.
The cost of a Reverse Mortgage depends a lot on the type of loan you get and the value of your home. Costs associated with a Reverse Mortgage vary from the federally insured HECM to the proprietary Reverse Mortgage, also known as JUMBO Reverse Mortgage. In most cases, the JUMBO Reverse Mortgage has no origination fee and low closing costs while the federally insured Reverse Mortgage has costs that are determined by the value of the home. Generally speaking, the longer you keep a Reverse Mortgage, the lower the loan costs will be.
Yes. You can use a Reverse Mortgage to purchase a home as long as you make it your primary residence.
You can use the Reverse Mortgage any way you want. However, borrowers should be aware that using the money from a Reverse Mortgage to purchase financial products is not advisable and they should always consult with family members and/or their trusted advisors when it comes to financial products. Borrowers also need to make sure that they have the financial means to continue making property tax and homeowners insurance payments.
The reason there are no mortgage payments with a Reverse Mortgage is that that’s how it was created. In 1987, Congress passed an FHA Insurance Bill called the Home Equity Conversion Mortgage Demonstration, a reverse mortgage pilot program to insure reverse mortgages. In it, monthly payments were not required, allowing seniors to defer mortgage payments to the end of the loan which was either when the last surviving borrower passed away, vacated the home, or permanently move away.
Yes, we do! We offer discounts for veterans, first responders, law enforcement officials, and their families. Call me for more information.
At One Trust Home Loans, we have taken the initiative to improve our systems to adapt to the COVID-19 pandemic. We offer virtual meetings via Zoom, Skype, and Facetime to adapt to our client’s needs while being able to make full presentations of your options from the comfort of your own home. All you need is a computer, a tablet, or a smartphone to connect with us. We also offer in-person consultations and to ensure your safety, we have adopted all recommendations made by Federal and State authorities for in-person meetings. Contact us for more information.
Yes, they are and in order to make sure you get the best reverse mortgage experience, it is important to understand how they work and what are some of those features that make them safe.
1. Federally Insured. One of the loan’s biggest protection is that it is insured by the FHA. (Federal Housing Administration). This means that if something were to happen to your lender, The Department of Housing and Urban Development would automatically assume the lender’s obligations towards you under the terms of your reverse mortgage contract, ensuring there is no interruption of your monthly payments, Line of Credit or any other plan you may have chosen at closing. This Mortgage Insurance also protects you and the lender in the case you were to outlive your loan, if the loan balance were to exceed the value of your home or both. In such cases, the Mortgage Insurance Fund would pay the difference to your lender without imposing additional obligations to you. In simpler words, you will never owe more than what the house is worth.Lastly, an FHA Reverse Mortgage while being insured by the Federal Government, is issued and serviced by a lender who makes all the cash advances to the borrower.
2. Non-recourse feature. Non-recourse feature. Another borrower protection built into the Reverse Mortgage loan is that it is non-recourse in nature. That means that if your Reverse Mortgage ends up exceeding the value of your home, you will never have to repay more than what your home is worth at the time of sale. The non-recourse aspect applies to your estate as well: If you own other properties and have other assets, your home is the only collateral for the loan which means that the lender can’t come after any other assets you leave behind.
3. Required Counseling. All prospective HECM borrowers are required to first undergo a counseling session through a Department of Housing and Urban Development-approved, third-party counseling agency. The purpose of the counseling is to make sure you understand how the loan works and how it could apply to your particular situation. Counseling sessions also give you the opportunity to ask any questions you might have. Counselors will assess your knowledge of the product before granting a certificate that enables you to move forward in the loan application process. Because counseling is conducted by a third-party agency, you can rest assured you are getting objective information from someone who has your interests at heart. The counseling is meant to educate you so you can make an informed decision.
Yes, a Reverse Mortgage is a loan like any other and it is not a government grant. When the borrower passes away, sells the house or no longer lives in the home, the Reverse Mortgage becomes due. If you pass away, your heirs get to decide if they want to keep it or sell it. Feel free to contact us for more information.