Frequently Asked Questions For a New HECM:

There are a LOT of questions to ask.

Here are some answers.

The questions for a regular refinance are pretty straightforward and easy: What will the new interest rate be? What will the new payment be? Will I get some cash out? Answers to these questions make the decision to refinance extremely easy.

This is NOT so with a Home Equity Conversion (HECM or reverse mortgage).

Here are some VERY popular and recurring questions (If you have any you’d like to ask or think should be added to this page, send us a message HERE):

What is the process? There are 5 steps involved in obtaining a reserve mortgage:

  1. Initial pre qualification and evaluation.
  2. FHA / HUD-mandated HECM pre-application counseling (a list of approved counseling agencies can be found here)
  3. Loan application
  4. Processing and document-gathering
  5. Underwriting/Approval/Closing

How long does the process take? Barring unforeseen or extraordinary circumstances, the whole process typically takes less than 60 days.

What can we leave to our heirs?  Reverse mortgages can use up the equity in your home, which means fewer assets for you and your heirs. Most reverse mortgages have something called a “non-recourse” clause. This means that you, or your estate, can’t owe more than the value of your home when the loan becomes due and the home is sold. With a HECM, generally, if you or your heirs want to pay off the loan and keep the home rather than sell it, you would not have to pay more than the appraised value of the home.

What happens to my spouse? If they signed the loan paperwork as a co-borrower, nothing happens. The loan continues even after you are gone. If they did not, in certain situations, your spouse may continue to live in the home even after you die if they continue to pay taxes and insurance, and still maintain the property. But, if there is a monthly payment set up or a line of credit, these benefits will cease.

What types of homes are eligible? To be eligible for the FHA HECM, your home must be a single family home or a 2-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

What costs will we continue to have? You are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. A financial assessment is required when you apply for the mortgage, to confirm that you will be able to afford these costs. It is possible for a lender to require a “set-aside” amount to pay taxes and insurance during the loan.

Is the loan interest tax deductible? Only when and if you make a full or partial repayment. Interest accrues on a reverse mortgage and only payments on interest are tax deductible.

What are the differences between a reverse mortgage and a home equity loan? With a second mortgage, or a home equity line of credit, borrowers must make monthly payments on the principal and interest.  A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.

Are the HECM interest rates fixed or adjustable? Most reverse mortgages have variable rates, which are tied to a financial index and change with the market. Variable rate loans tend to give you more options on how you get your money through the reverse mortgage. Some reverse mortgages offer fixed rates, but they require you to take any cash-out as a lump sum at closing. Most times, the total amount you can borrow is less than you could get with a variable rate loan.

What are the differences between the various lenders? The loan options and the bulk of the fees are tightly controlled by the federal government and so there is very little difference from lender to lender. There can be some slight interest rate variances between lenders and that can have a small impact on the total of funds that are available. The only discretionary fee difference between lenders is the origination fee and (if one is charged at all) it can range from $2,500 to $6,000 – which will impact the total loan proceeds available.

How much money can I get from my home? The amount varies by borrower and depends on:

If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.

What if our home is worth way more than $636,150? A jumbo reverse mortgage is a reverse mortgage product designed for high-value homes – typically homes valued above the $625,000 level although the specifics of the loan will depend on the borrower’s age and location. So, the main difference is simply that it is possible to get more money out of a high value home with a jumbo reverse mortgage than from other reverse mortgage products.

Why does the mortgage balance get bigger? As you access money through your reverse mortgage or defer monthly payments, interest is added onto the balance you owe each month. That means the amount you owe grows as the interest on your loan adds up over time.

How do I receive my payments? For adjustable interest rate mortgages, you can select one of the following payment plans:

What is a Mortgage Insurance Premium and why is it so high? MIP (paid both upfront at loan closing and then monthly throughout the life of the loan) protects you, the lender, and the Federal Housing Authority. No matter what happens to the lender, your loan’s features and benefits will remain. It also insures that no matter what happens to the loan balance (or the value of the property), you heirs will never owe more than the house is worth. This security allows HECM interest rates to be far lower than they otherwise would be.

Are there limits on how to spend the proceeds of a HECM? No. You can spend it on ANYTHING you like!

What now?

You may have MORE questions. Your family or friends may have more questions. Please contact us – we can communicate by email, phone, or in person. Whatever you like!

You may also want to see how much you qualify for or to have a no-obligation conversation to see if a reverse mortgage would be right for you. We would be honored to assit you! Click the “Contact” tab above, this link HERE, or click the phone or email icons below.