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1. Am I signing my house over to the Government?
Answer: Absolutely Not!! You can sell at any time, pay off the Reverse Mortgage at any time, or increase your available Credit Line by paying money into it. Any Equity in your home is yours or your heirs to do with as you choose. Neither the lender or HUD/FHA share in your equity.
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2. What happens when I die?
Answer: Your heirs have choices. They can refinance the property, pay off the reverse mortgage, and retain title to the family home. They can sell the property for fair market value, pay off the Reverse Mortgage and receive any remaining equity at the close of escrow. If feasible they can pay the balance due from other assets in your estate.
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3. What if I die owing more on the house than its Market Value?
Answer: A reverse Mortgage is a "Non Recourse" Loan. That means the lender agrees to accept title to the property as full satisfaction of the debt. For an example: If you owe $400,000 and your property values drop to $150.000 all you owe will be $150,000 and your debt is paid in full.
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4. Can I outlive a Reverse Mortgage?
Answer: No. Your benefit is guaranteed by Housing and Urban Development (HUD), or the Lender at the time you take out your Reverse Mortgage. If you select guaranteed Tax Free monthly income (Tenure) the payments continue for as long as you live. If you select the credit line option the amount available will be there for you no matter what happens to the value of your property. In addition the credit line has a built in Tax Free growth factor equal to 1 Year Treasury Security yield plus 1.50% .
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5. What is the Insurance I’m paying to HUD all about?
Answer: Housing and Urban Development (HUD) collects an upfront Mortgage Insurance Premium. Additionally there is ½ of 1.00% insurance premium collected by HUD annually on your outstanding principal balance. This insurance premium is retained by HUD to protect the lender against losses incurred when a Senior Citizen passes owing a balance on their Reverse Mortgage that exceeds the value of the property.
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6. How much can I get?
Answer: There is no simple answer to that question. Reverse Mortgage Benefits are calculated using a combination of factors:
A. The value of your home.
B. The Maximum HUD Insurable Loan Amount in your County of Residence.
C. The attained age of all borrowers.
D. The statistical life expectancy of all borrowers.
E. An applied Property Value Appreciation rate of approximately 4.0%.
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7. How does my age affect my potential benefit amount?
Answer: The older you are the higher your benefit will be. That is because your statistical life expectancy shortens as you grow older. A 62 year old has a longer life expectancy than a 75 year old, hence the benefit is more for the 75 year old.
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8. I have a high priced Home. Why doesn’t HUD take the full value of my home into account?
Answer: HUD establishes maximum loan limits for each county in each state. These limits change annually in step with market conditions. HUD uses either the lower of the appraised value of your home or the maximum HUD loan limit in calculating your benefit. If your appraised value exceeds HUD loan limits the excess value is ignored in the Benefit Calculation. It may not seem fair but that is the way the program is structured.
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9. I’ve gotten several quotes. Why are they all about the same?
Answer: Much of the cost of obtaining a Reverse Mortgage is fixed. Interest rates are established by a HUD formula and are exactly the same no matter which provider you choose. The only negotiable items are the monthly service fee and the Loan Origination Fee. There may be some very minor fluctuations in the cost of Escrow, Title Insurance, etc.
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10. Why do I need Counseling before Processing starts?
Answer: HUD wants you to be an informed consumer. Independent 3rd party counseling is required before you can apply for a Reverse Mortgage. The counselor has been trained to answer your questions about Reverse Mortgages, provide an independent Benefit Analysis, and provide a professional opinion about the advisability of a Reverse Mortgage as it applies to your situation.
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11. Why is an Appraisal Required?
Answer: HUD requires that properties it insures loans on meet certain minimum property standards. The HUD Appraisal identifies any potential
Structural deficiencies, pest infestations or safety hazards as well as determining a “Fair market Value” for your home. If there are any deficiencies noted repairs can be paid from the proceeds of the reverse Mortgage.
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12. Are any advance application fees required?
Answer: HUD does not sanction the collection of application fees. Some lenders may ask you for a fee deposit to cover the cost of the appraisal. We prefer you either pay the HUD Appraiser directly when the inspection is done or have the appraisal fee paid from escrow at closing. We do not collect application fees of any kind. Be wary if you are asked for money as a condition of making application for a Reverse Mortgage.
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13. It sounds to good to be true. How can they do this?
Answer: Most Reverse Mortgages are Federally Insured. That’s why the interest accrual rate on Federally Guaranteed Reverses is so low. No matter what happens the lender has a Federal Guarantee that they will never lose money on the transaction. Wall Street is willing to fund Reverse Mortgages because of the Federal Guarantee. The Federal Government likes the program because it brings significant Revenue to HUD in the form of Insurance Premiums.
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14. How does the lender make any money on Reverse Mortgages?
Answer: It’s called “Accrual Accounting”. The Lender owns a appreciating asset. They are allowed to accrue the interest as income even though they never get any real money until the Reverse Mortgage is settled. In many cases that could be 10 to 30 years from now. Because the principal and interest is Federally guaranteed there is no exposure to loss. For now everyone wins.
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15. Why does the Federal Government offer this program?
Answer: Most Senior Citizens would prefer to stay in their homes for as long as possible. Some are forced to sell because their expenses exceed their fixed incomes. The Reverse Mortgage is an alternative. The Federal Government is guaranteeing the Reverse Mortgage program to enable Seniors to “Age in Place”. This minimizes the cost of caring for Senior citizens who might otherwise find themselves relying on Federal Aid Programs for assistance. Contact us for a free consultation
16. What happens if the value of my Home declines?
Answer: The short answer is nothing. Your available benefit is calculated on your homes fair market value as of the date you obtain the Reverse Mortgage.
Your available benefits are Federally guaranteed from the date you obtain your Reverse Mortgage. The Mortgage Insurance Premium you pay to the Federal Government will be used to offset any losses the Government suffers as the result of declining property values.
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17. If it’s not interest what exactly is Credit Line Growth and why do I get it?
Answer: The short answer is you get it because it’s part of the program. Instead of thinking of it as interest call it costs of living increase. If we called it interest you’d have to pay taxes on it. Look upon it as a loophole in the IRS code, one that works in your favor. The unused portion of your available line of credit grows just like a Money Market Savings Account.
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