While both Reverse Mortgage loans and home equity loans enable you to turn the equity in your home into spendable dollars, there are important differences. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is originated. And, in order to qualify for such a loan, you must meet credit qualifying standards and have a monthly income great enough to make the monthly payments. Additionally, if you fail to make your monthly repayments, you could lose your home.
On the other hand, qualifying for a Reverse Mortgage is easier and you will NEVER have to repay the loan as long as the home remains your principal residence. You can't lose your home by failing to make monthly payments because there are no monthly payments to make, however it's important to note that foreclosure may occur if you do not pay your taxes and insurance and otherwise comply with the loan terms.
You can use the proceeds most any way you choose. After all, it is your money. You are tapping into your own equity in the property that you own. The primary requirement is that any outstanding lien (mortgage or other debt against the home) on the property must be paid in full at the time the Reverse Mortgage loan is done. After that, the funds from a reverse mortgage can be used for virtually any purpose. You can supplement your current income, pay off bills, make home improvements, travel, the list is virtually endless.
The proceeds received from a reverse mortgage are loan advances and are not considered taxable income by the IRS. We recommend that you consult your tax advisor.
A Reverse Mortgage loan is considered a Non-Recourse loan which provides protection for the Reverse Mortgage borrowers and their estate. The Non-Recourse feature provides protection for the borrower against changes in the future value of the home. This means that you can live in your home for life, never make another mortgage payment, and never have to worry about passing an obligation on to an heir. In most scenarios, you still pass equity on to your heirs but it's nice to know that regardless of how much money you receive on your reverse mortgage, how long you live in your property, what the interest rates do, or what home values do in the future, you or your heirs can never owe more money than the property is worth. This non-recourse feature is one of the greatest of several built in security benefits the reverse mortgage is known for. So even if you receive monthly loan advances until you are aged 120, and your home declines in value between now and then, and the total of monthly advances becomes greater than your home's value - you will still never be required, upon the loan being due and payable, to pay more than the value of your home. If you or your heirs sell your home in order to pay off the loan, the amount the lender can collect is guaranteed to be limited to the net proceeds from the sale of your home.
The loan becomes due and payable when the last surviving borrower or eligible non-borrower dies, permanently moves away, sells the home, or if borrower(s) fail to meet the obligations of the loan terms, such as not paying property tax, homeowners insurance or maintain the home. "Permanently" generally means you have not lived in your home for 12 months in a row. At that point, the loan will need to be repaid. The reverse mortgage can be paid off with the proceeds of the sale of the house, or be refinanced by the heirs of the homeowner's estate. If the proceeds exceed the loan payoff, the borrower receives the (profit) difference or if the borrower has died, the heirs receive the difference. In cases where the proceeds are not sufficient to pay off the loan, in other words the house sells for less than the loan payoff, then the bank (or mortgage insurance which the bank has on the loan) absorbs the difference. You can never be required to pay more than the value of the home at the time the loan is repaid. The homeowner will NEVER pay the Reverse Lender a greater amount of money than what the house sold for if the loan is called due and payable. (Non Recourse Loan) The lender does not have legal recourse to anything other than the value of the home when the loan is to be paid off. Not your income, your other assets, or those of your heirs.
Each month your loan balance grows as you take cash advances, make no repayment, and have interest charges added to the amount you owe. The terms of your Reverse Mortgage loan allows for you to NEVER be required to repay this debt until you permanently move from your home as long as you comply with all loan terms. From the time you leave your home, you or your heirs typically have up to one year to settle the debt with the Reverse Mortgage lender. Extensions out to one year are at the discretions of FHA. The payoff amount would consist of the original loan amount plus any cash advances and all accrued interest, as well as any other advances made to the borrower by the lender.
The loan balance becomes due when the last surviving borrower dies, sells the home, permanently moves away or otherwise fails to comply with the loan terms, including not paying taxes, insurance or maintaining the home. "Permanently" generally means you have not lived in your home for 12 months in a row. The loan must be repaid before the home's title can be transferred to the borrower's heirs. The borrower or his heirs could repay the loan by selling the home, using other funds from the borrower's estate or funds of the heirs, or by taking out a new forward mortgage against the home.
Your home will transfer to your heirs per your will or estate plan, just like it will now. The outstanding Reverse Mortgage loan balance must be repaid once your estate is settled. Your heirs may sell the home, pay off the outstanding loan balance and keep the remaining cash, or refinance the outstanding loan balance and keep the home. Your heirs are generally given up to a year to resolve the estate and repay the reverse mortgage. In any case, a Reverse Mortgage is a "Non Recourse" loan which means that no matter how much you owe at the time the loan is due and payable, you or your heirs can never owe more than the value of the home at that time. Of course, if there are proceeds left when the home is sold, that money goes to either you or your heirs. This makes the loan safer for both senior homeowners and their families.
The total amount you will owe at the end of the loan (your "loan balance") equals
• all the cash advances you've received (including any that were used to pay loan fees or costs)
• plus all the interest accrued on these amounts
Because the loan is a "Non Recourse Loan." you will never owe more than the value of the home at the time the loan is repaid. The homeowner will NEVER pay the Reverse Lender a greater amount of money than what the house sells for.
If my home appreciates in value while I have a Reverse Mortgage loan, who will be entitled to that money?
With a Reverse Mortgage loan, you are required to pay back to the lender the outstanding loan balance. If the appreciated value is necessary to pay off the Reverse Mortgage loan when called due, it must be used to repay the loan. Appreciation amounts in excess of the loan balance go to the borrower, or if the borrower and non-borrowing spouse are deceased, their heirs.
Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
No. As long as you continue to occupy the property as your principal residence and abide by the loan agreement, which states that you are responsible for property maintenance and payment of all property taxes and insurance, you can stay in your home as long as you choose. No deficiency judgment may result from your Reverse Mortgage loan.
Upon your death, the loan balance, consisting of payments made to you or on your behalf (such as fees) plus accrued interest becomes due and payable. Your heirs may repay the loan by selling the home or by paying off the Reverse Mortgage loan so that they may keep the home. If the loan balance exceeds the value of your property, your estate will owe no more than the value of the property. No additional financial claims may be made against your heirs or estate.
The out-of-pocket cash cost to you is most often limited to the fee for the required HUD counseling, and the fee that covers a property appraisal (to see how much your home is worth). Based on equity, all of the other closing costs can be included in the loan. This means that you can use reverse mortgage funds advanced to you at closing to pay the costs due at that time, and later advances to pay any ongoing costs. The advances are added to your loan balance, and become part of what you owe - and pay interest on.
The costs associated with getting a Reverse Mortgage loan are similar to those of a regular conventional mortgage. Typically, Reverse Mortgage loans have a 2% origination fee and a 2% HUD mortgage insurance premium which can be financed through the proceeds of the loan however, depending on the loan type you choose, both these costs could be less. Our representative will go over every loan detail with you and provide a good-faith estimate of the exact costs involved for you.
Other costs commonly charged to a reverse mortgage borrower can include:
Credit report: Checks for any judgments or tax liens against the borrower
HUD Counseling: Required for all Reverse Mortgage borrowers.
Flood Certification: Determines whether or not the residence is built on a federally designated flood plane.
Title insurance: Protect owner and lender against any loss due to disputes over property ownership. ownership of a property – the larger the loan amount, the higher the cost of the title insurance.
Escrow, Settlement or Closing: Typically includes a title search and any other required closing services.
Document Preparation: Preparation of all final closing documents.
Recording: Fees associated with recording the mortgage lien with the County Recorder's Office.
Courier: Overnight mailing of any documents between the lender and the title company or loan investor.
Although not a closing fee as such, the service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account. The servicing fee can be monthly.
The amount of the fee is determined by the servicer and may be absorbed by the lender, so what the borrower pays varies. Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside, if there is a one-time servicing fee assessed at closing, is largely determined by the borrower's age and life expectancy.
Federal Truth-in-Lending law requires reverse mortgage lenders to disclose the projected annual average cost of these loans in a way that includes ALL of the costs. This disclosure is called Total Annual Loan Cost (TALC) and it shows you what the single all-inclusive interest rate would be if the lender could only charge interest and not charge any other fees. Specifically, it tells you the annual average rate that would produce the total amount owed at various future points if only that rate were charged on all the cash advances you get that are not used to pay loan costs. In other words, it shows you what you are paying in total for the money you get to spend.
If you end up living in your home well past your life expectancy or your home appreciates at a low rate, your TALC will reflect a lower rate (cost). But if you die, sell, or move within just a few years or your home appreciates a lot, the true cost would be higher. There's no way of avoiding this fundamental risk. You just have to understand it in general, assess the potential range of TALC rates on a specific loan, and decide if it's worth the advantages you expect you'll gain from the Reverse Mortgage loan.
Reverse Mortgage loans are a good option for many Senior borrowers to consider, but all potential borrowers must consider the risks involved when obtaining your Reverse Mortgage loan. You still must maintain your home and keep your property tax and homeowners insurance paid and current. Historically, too many Reverse Mortgage loan borrowers failed to pay taxes and insurance and maintain their homes, which resulted in foreclosures. Changes have been made by HUD to the insured reverse mortgage loan to address this risk, but you should think carefully about how you will pay these expenses after you receive your reverse mortgage loan. Since the loans are "non-recourse" the lender is limited to the home's value at the time of repayment, and you or your heirs are only involved in inheritance, not debt. With a Reverse Mortgage loan you may remain in your home as long as you like. Borrower(s) continue to own the home and with no monthly mortgage payments to make (taxes and insurance must be paid), this may relieve the worry of outliving your savings. Reverse Mortgage loans can help you increase retirement cash, provide funds for health care, reduce the impact of and provide funding for estate taxes, and maximize legacy asset transfer.
You do. A Reverse Mortgage loan is a lien just like a traditional mortgage. Repayment is required when the last surviving borrower or eligible non-borrowing spouse sells the house, moves away or dies. Borrower(s) cannot lose their home under normal circumstances, but foreclosure may occur if they do not pay their taxes and insurance and otherwise comply with the loan term. Upon the sale of your home, any remaining equity in your home, if any, belongs to you or your heirs. None of your other assets will be affected by a Reverse Mortgage loan. This debt will never be passed along to the estate or heirs,unless they want to retain the property.
New Castle Mortgage was founded to specialize in the marketing of Reverse Mortgage loans to Seniors. New Castle Mortgage is “The Reverse Mortgage Company of Tennessee”. Our loan specialist's are friendly, professional, and passionate for the industry we represent. One of our primary concerns is to focus on looking out for the best interest of our senior customers. We are a company of 12 people and collectively have over 200 years experience originating, processing and closing FHA Government loans throughout Tennessee. We assign a personal Reverse Mortgage Advisor to you who will help you every step of the way, from application to closing. New Castle Mortgage is a member of the National Reverse Mortgage Lenders Association. We are fully licensed by the Tennessee Department of Financial Institutions and are an Equal Housing Lender. We are a proud member of the Better Business Bureau's Reliability Program and belong to our state and national mortgage broker associations, TNAMP (Tennessee Association of Mortgage Brokers) and NAMB ( National Association of Mortgage Professionals).
Decide who you trust, and then discuss your intentions with them. It may be your children, a family member or close friend, spiritual advisor, your attorney or financial advisor. Someone that looks out for your best interest and can help you make this decision. We encourage all interested parties to participate in the discussions regarding the Reverse Mortgage loan. Agencies such as AARP and NRMLA are also excellent sources for advice on Reverse Mortgage loans. We want you to feel confident in your decision and we encourage all interested parties to participate in the discussions regarding your Reverse Mortgage. The more informed everyone is, the easier it is to see the many advantages and "safety nets" that are built into the Reverse Mortgage loan.
In many Reverse Mortgage loan transactions, the immediate family members take on a crucial role as advisors to the transaction process. Most often, the children of the senior are the most trusted advisor when it comes to a senior's finances. However, a family friend, a trusted advisor, or someone who has a genuine interest in helping the senior party can also be of assistance, especially in the absence of a close family member. It is recommended that the family members or advisors be involved in the initial meetings, the presentation and the HUD counseling service to make sure that everyone fully understands the entire Reverse Mortgage loan process. If you are acting as an advisor to a senior homeowner, there are several things you should know about Reverse Mortgages and how they can help seniors live more comfortably and securely. It's also important to understand the risks involved, in that the loan balance becomes due and payable if the borrower does not comply with all loan obligations, such as paying property taxes, insurance, and maintaining the home.
• A reliable, proven choice.
A HECM FHA Reverse Mortgage loan is a government-insured financial tool that has helped over 150,000 seniors enjoy better lives. Many safeguards are built into the product to protect seniors from predatory lending practices.
• The best of both worlds.
A Reverse Mortgage loan can be the right choice for senior homeowners who need additional cash flow without having to sell their homes to raise cash. With a reverse mortgage, the homeowner can get a monthly payment, a line of credit, a lump sum distribution or a combination of the three, without having to move or give up title to the home.
• Liquidity tool.
A Reverse Mortgage loan is an ideal way to create liquidity from a real estate asset. This liquidity can enable seniors to pay bills, make home repairs, retire an existing mortgage (required to get a Reverse Mortgage loan), or to purchase such health-related services as long-term care insurance.
• Tax-free cash from a Reverse Mortgage loan.
Since a reverse mortgage loan taps into existing home equity, the proceeds are not taxed as income
• Understanding foreclosure risks.
It's important to understand the risks involved when considering a Reverse Mortgage loan, in that the loan can go into a foreclosure status if the terms of the loan are not followed. The balance becomes due and payable if the borrower does not comply with all loan obligations, such as paying property taxes, insurance, and maintaining the home.
Only you can decide what a Reverse Mortgage loan is worth to you. It probably depends most on what you would use one for. Increasing your monthly source of funds, having a cash reserve (equity line of credit) for irregular or unexpected expenses, paying off debt that requires monthly repayments, repairing or improving your home, getting the services you need to remain independent, or generally improving the quality of your life are all advantages that can be achieved through a reverse mortgage. However, in evaluating the worth of a reverse mortgage it may be helpful to consider a major alternative: selling your home and moving.
Consider the following:
• How much money could you could get by selling your home?
• What it would cost you to buy & maintain or rent a new one?
• How much you could safely earn on sale proceeds not used for a new home?
Also, looking into other housing options, comparing housing alternatives first-hand and in-person, may help you decide if a reverse mortgage is best for you. You may find a different home, neighborhood, or community with an array of services or amenities that is much more attractive than you would expect to find. Or, you may only confirm what you were pretty sure of all along: that where you live now is easily the best place for you to be.
Either way, researching your options will give you a good idea of the overall costs and benefits of staying versus moving. This will give you a better sense of what's valuable to you. And make it easier to evaluate the cost of a reverse mortgage.
Like all homeowners, you still are required to pay property taxes and provide property insurance and maintain the condition of the home. Review your loan documents for other responsibilities, which include paying HOA dues, if applicable, continuing to reside in the home, and not allowing any liens to be placed on the home by contractors or others. You must continue to occupy the home as your principal residence.
The Reverse Mortgage loan is often used to pay off an existing loan. Existing mortgages must be paid off at closing.
Social Security and Medicare benefits are not affected by reverse mortgages. But Supplemental Security Income (SSI) and Medicaid are different. In general, these programs are not affected by your loan advances if you spend them during the calendar month in which you get them. But if you keep an advance past the end of the calendar month (in a checking or savings account, for example), then it will count as a "liquid asset." If your total liquid assets at the end of any month are greater than $2,000 for a single person or $3,000 for a couple, you could lose your eligibility. Therefore, a Reverse Mortgage borrower who also receives SSI should never draw more money than he or she actually needs to spend that month. Regulations for state-administered programs such as Medicaid, AFDC, and food stamps and for state-funded welfare programs (such as state supplements to SSI), all have different eligibility requirements. Therefore, we suggest that you consult a benefits specialist at the local offices for these programs to determine how Reverse Mortgage payments may affect your particular situation
As long as one borrower or eligible non-borrowing spouse remains in the home, the reverse mortgage does not need to be closed or become due and payable. If the last borrower or eligible non-borrowing spouse needs to go to a nursing home but intends to return, the reverse mortgage doesn't need to be repaid until that homeowner has been gone from the home for 12 consecutive months.
Your home needs to remain your principal place of residence when you have a Reverse Mortgage loan. You may leave your home for any reason for up to 12 consecutive months. If you decide to sell your home, you simply repay the Reverse Mortgage loan balance from the sale proceeds exactly as you would with a conventional forward mortgage and keep the remaining cash.
If you choose to sell your home, the outstanding loan balance becomes due and payable to the mortgage lender at the time of sale. You would receive any proceeds exceeding the loan balance.
If you sell your home to your children, or any other individual, the Reverse Mortgage loan will be due and payable at settlement. After the loan is repaid, occupancy arrangements are at the discretion of the new owners.