Reverse mortgages can provide tension in families, specially those who are depending or relying on their parents properties after they pass away. Family is a difficult subject and always very emotional, and with this we try to provide logical information for heirs.
Know upfront that your heirs/kids will never be responsible for paying any debt which exceeds the home’s value (non-recourse loan) which is guaranteed by government to protect your heirs – this means that if you take a reverse mortgage now – and in 20 years time your home is not worth the amount you owe on the mortgage, your heirs will not have to pay a single penny – FHA will cover the difference when the bank sells the home (your heirs have the ability to buy the home or refinance the loan as they wish – even if the home is worth less in the future).
It is your responsibility to help your parents decided whether or not they should even be considering such a mortgage, we understand you also have you own life to juggle, and this is why we have a straight forward approach to providing you with necessary information to help you make a decision for them.
You parents must be at least 62 years old, own the home, and live in home as their primary residence. You don’t have to worry about credit scores or income, as this is not a requirement for a reverse mortgage.
How does a reverse mortgage work? Seniors who qualify will be able to release equity from their homes
Did you know there are some 4 HECM programs to choose from?
HECM FIXED STANDARD OPTION
HECM Fixed Standard – main features
§ Fixed interest rate
§ Upfront lump sum (funds are not taxed)
§ Upfront mortgage insurance premium is 2%
§ Pay interest on full lump sum you borrow
Designed for seniors who want or need the maximum amount of equity out of their homes and are also interested in a fixed interest rate. You will pay the full 2% upfront mortgage insurance to FHA (belongs with the upfront fees) and with the right reverse lender we can even eliminate the origination fees.
Currently many seniors who have a first mortgage or large liens against the home are utilizing the HECM Fixed Rate Option to pay off their existing debts while being able to borrow more equity out of the home without selling. With rates this low seniors are looking improve retirement cash flow by getting rid the debt payments, while this is a costly option it works very well for many seniors (specially when taking home appreciation and offset savings from higher interest mortgage loans).
HECM ADJUSTABLE STANDARD OPTION
HECM Adjustable Standard – main features
§ Adjustable interest rate
§ Select how receiving the income/funds (credit line, monthly income)
§ Upfront mip 2%
§ Pay interest on amount borrowed only
Seniors who also want the full equity out but do not mind taking an adjustable rate mortgage option that has lower interest rates due. You will also be liable for the 2% upfront mortgage insurance which goes into the loan costs, lenders will most likely charge an upfront origination fee of 1-2%.
The lower adjustable rates can come in handy when you need some new income/funds in your retirement and have plans to sell the home in a few years. Seniors can also look at this option to pay off an existing mortgage, as the adjustable rates are very low right now.
HECM SAVER FIXED OPTION
HECM Saver Fixed – main features
§ Receive a lump sum upfront
§ Income is never taxed
§ Upfront mortgage insurance premium .01% (substantial savings)
§ Pay interest on full amount upfront
§ Less equity available compared to HECM standard
Pay less in upfront mortgage insurance (.01%), receive a smaller portion of the homes equity and get into a fixed rate option – this is usually utilized by seniors who have a substantial amount of equity in the home – money will come as a credit line or as monthly income (or combination).
HECM SAVER ADJUSTABLE OPTION
HECM Saver Adjustable –
§ Receive credit line or monthly income
§ Not taxed (never taxed)
§ upfront mip .01% (substantial savings )
§ pay interest on borrowed portion only
§ less equity available compared to HECM standard programs
Dont mind an adjustable rate mortgage or receiving less of your homes equity – also utilized by seniors with more equity in the homes – this can be one of the cheapest options of the HECM loans as the interest rates for the adjustable programs are the lowest – mortgage insurance is also (.01%) thus savings is realized with this option.
Yes, at all times your parents or their estate will own the property, the reverse mortgage works as regular mortgage in this case and there is no need to worry about the bank stealing the home.
Who guarantees these loans, are they safe?
Reverse mortgages are FHA guaranteed, meaning they are backed by the federal government with no risk of default ever, this is the safest mortgage option. If you or your parents decide that they want to receive a lifetime monthly income option – this is essentially the same as an annuity – but without the risk of a private annuity from a insurance company ( they can go bust and your investment will return 0).
What happens if one spouse is not 62 and is living in the home?
This is where the loan can get tricky – the loan terms state that if anything were to happen to the borrower who is on the loan ( pass away or move out of the home ) then the loan will become due. So if a spouse or another family member plans to live in the home if anything happens to the borrower the loan will come due – the only way to prevent this is to either put the spouse or other family member on the loan ( must be 62 and meet the other HECM qualifications) or have a plan for where they will live once the borrower passes.
Once my Parents Move Out What Are My Options?
As the heir you will have the right to sell the home, refinance, or keep the home if the property was assigned to you by your parents estate. You will own the home and have to pay off the reverse mortgage loan, simple.
§ selling ( most advisable when you have no intentions of living in the home and there is enough equity to cover HECM loan – in some cases you will also profit from the sale.)
§ refinance ( you are given a time period (reasonable) enough to find a new financing source – you can refinance the loan into a forward loan or a reverse one.)
§ keep home pay off using other assets or savings
You will never be responsible for their debt ( non-recourse loan structured to protect you)- if you wish you can simply let the bank take back the home – this is recommended when the home’s value drop significantly – this menas that your parents got to use the home’s equity but now that they have passed the debt burden if not your’s but the federal governments.