Some Reverse Mortgage Questions. And Their Answers.

People tend to have MANY questions about Home Equity Conversion Mortgages. Here are some of them – along with some answers:

What exactly is a reverse mortgage? I see ads for them everywhere?

Very simple: a reverse mortgage, or Home Equity Conversion Mortgage – HECM – uses the equity in the home to make it possible for there to be NO payments over the life of the loan. The loan balance continues to increase in lieu of payments. The loan is paid off (1) whenever you send the lender the money (2) the house is sold (3) the owners pass away.

Can our heirs inherit the house?

Yes – but they will have to pay off the balance of the existing reverse mortgage – the reverse mortgage cannot be assumed. The balance could be less than the value of the home (depending on what the house appraises for and how long you had the loan) But: the payoff cannot be more than the appraised value of the home, no matter what

What types of HECMs are there?

2 ways to answer this question: fixed or adjustable (I did a video about the differences on the website New HECM, refi HECM, purchase HECM

Can we lose the home because of a HECM loan?

Strictly speaking no – since there are no payments due, there is no payment default. But, you do have to maintain the property and pay the property taxes. Defaulting on property taxes could cause you to lose your home to the tax collector, with a reverse mortgage, a traditional forward mortgage, or no mortgage at all.

Why not get a home equity loan?

Great question. You could – both loans access equity. And with a home equity loan, you might even be able to get more cash out. BUT you’ll have payments. And they’re harder to qualify for. And that’s the beauty of a reverse mortgage no payments and low qualification standards.

Why is the Up Front Mortgage Insurance so Damn high?

The mortgage insurance premiums protect you, the lender, and the department of housing and urban development. A HECM is no-recourse loan – meaning you will never owe more than the house is worth. Furthermore, even if the lender who made the loan goes out of business, even if in 20 or 30 years, the loan will continue to perform as it did on the first day. The insurance guarantees this.

In certain cases, the mortgage premium CAN be substantially lower, depending on how big the existing mortgage is – If there is one at all – and what your home is worth. There are certain circumstances where, if a loan is right on that bubble, bringing a little cash to close can result in a LOWER mortgage insurance premium, which means MUCH lower closing costs.

What are the ways we can get cash out?

On the fixed-rate loan there is just one way: lump-sum cash at close.
On the adjustable rate, you can get the same lump-sum amount at close. You can also set up a line of credit or a monthly payment for the life of the loan. Furthermore, if you have sufficient equity, after 13 months you can have an additional amount of cash, an increased line of credit, or an increase in the guaranteed monthly payments.

What are the limitations on the use of the cash-out?

None. Zero. Zip. Use the money for whatever you want!

These, of course, are just the tip of the iceberg — each individual’s is unique and so will be their questions. We would love to help you figure out the important questions for your situation and then answer them for you!

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