The borrower has title &
ownership to the home, not the lender. It’s a common mistake
(and it’s a big one) to think you are selling your house to the
lender – you are not. Also, and just as important to know, the
lender does not “get” the house when the borrower dies.
With a RM, ownership is held just like a
conventional mortgage. The lender places a lien against the
property – but the homeowner retains title to the property and
can sell, payoff or prepay the RM at any time without penalty.
The lender is simply giving you a loan that will be repaid at
some time in the future.
Q
:
How are you paid?
A :
You can be paid in 3 ways: 1) A
single lump-sum disbursement, 2) Monthly payments for as long as
a borrower lives in the house, or 3) Monthly payments for a set
period of time.
The older you are, the larger your reverse mortgage benefits
will be. The formula for your payments is determined by: A) the
age of the borrowers; the loan-to-value is triggered by life
expectancy, B) the market value of the home; we will order a
full appraisal by a certified appraiser in your area, and C) any
liens against the property.
The proceeds from a reverse mortgage can be used for anything:
Daily living expenses; home repairs and home improvements;
prescription drugs; long-term health care; retirement and estate
tax planning; and other needs you may have.
Remember, there are no monthly payments made to the lender
during the life of the loan. Therefore, since the lender never
receives a payment of principal or interest from the borrower,
the lender actually DEFERS their income until some time in the
future. At that time, and after the mortgage is repaid, the
remaining equity in the home goes back to the borrowers or the
heirs, not the lender.
Q
:
Are your payments taxable?
A :
No. Your payments
are in the form of a loan and are not subject to federal income
tax. In addition, these payments won’t affect your Social
Security or Medicare. However, SSI and Medicaid benefits may be
affected if your “liquid assets” exceed a certain level; please
consult your financial advisor or attorney about the specifics.
Also, there are no income or asset limitations, nor are there
any medical or insurance examinations.
Q
:
When is the loan paid back?
A :
Repayment of the
loan occurs after: 1) The surviving borrower’s death, 2) The
sale of the home, or 3) When the surviving borrower vacates the
home for 12 consecutive months.
In short, the lender receives one big payment (a balloon
payment) when the loan matures. It’s simply another way to
finance a mortgage. Moreover, with the numerous constitutional
safeguards and federal protections surrounding this loan, a
reverse mortgage in Texas may be the safest mortgage product in
the country.
Q
:
What are the Interest Rates:
A :
All RM’s are
Adjustable Rate Mortgages (ARM’s) – so rates can and will move
up and down. For most of the last year, the interest rates
charged on the FHA RM have been below 5%; call a lender for this
week’s rate. The ARM’s are tied to the One Year Treasury and the
interest is compounded monthly – it’s a negative amortized loan.
Currently there are no fixed rate options available.
The COSTS associated with getting a reverse mortgage are similar
to those with a conventional mortgage, such as the origination
fee, title policy, appraisal and inspection fees, mortgage
insurance and other normal closing costs. All closing costs can
be financed into the mortgage, so your out-of-pocket costs are
minimal.
Q
:
Who is the Average borrower?
A :
The average
borrower(s) fit into one of two categories: Couples between the
ages of 64-83 & windowed females between 65-85. Under both
scenarios, they own homes valued between $54,250 and $295,500
with little or no debt on them.
Many of these homeowners are looking into a reverse mortgage for
one of 4 reasons: 1) Home repair, maintenance and property
taxes, 2) Prescription drug and long term health care relief, 3)
estate planning or annuity purchases and 4) the payoff of
existing mortgage or credit card debt.
Note: In many circumstances, it’s the children of the borrowers
who introduce their parents to the concept of a reverse
mortgage.
Q
:
Have the homestead Laws changed?
A :
No, the homestead
laws have not changed. Section 50, Article 16 of the Texas
Constitution still provides our state with the best homestead
laws in the nation. For details, refer to Section 50(a) (6) &
(7), Article XVI of the Constitution.
Q
:
What happens if I live to be 120 years
old?
A :
First off, you will
never be forced out of your house for living too long or
borrowing too much. That is guaranteed by the Texas
Constitution. Remember, though, you must pay your property
taxes, insurance and general upkeep.
Since your reverse mortgage will rise every month with
compounding interest, at some point, you may exhaust some or ALL
of the equity in the property. As a protection for the borrower,
as written in your loan documents, a RM is also a non-recourse
loan, which means the lenders only collateral is the house. If
there is ever a deficiency, the lender can never go after the
borrowers or their heirs personally. While it’s possible you can
receive payments, over time, in excess of the value of your
home, you will never be asked to pay back more than market value
of your home.
Q
:
Home Equity Loans vs. Reverse Mortgage
Loans?
A :
While cousins, these
are two completely different products, both legally and
practically. With a home equity loan, you must qualify for the
loan, much like a regular mortgage. You must also provide your
lender with tax returns, bank statements and pay-stubs.
Although, your borrowing power is greater with a home equity
loan, your lender will review your entire credit history and
require monthly payments.
With a reverse mortgage, credit, health & income are not issues.
There is no traditional underwriting or loan committee. More
importantly, there are no monthly payments to worry about, and a
reverse mortgage is much easier to obtain.
