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Moving Forward with Reverse Mortgages

By Peter Holmes

In a time where many folks are enjoying longer lives as a result of beneficial advances in technology and medicine, it's good to know that financial products still exist to allow senior homeowners to "age in place" in their homes without fear of exclusive underwriting conditions or absurd monthly mortgage payments.

One such financial vehicle, the reverse mortgage (also known as a "Home Equity Conversion Mortgage" or "HECM"), can offer an excellent solution for well-informed homeowners or homebuyers over the age of 62. In a marriage or domestic partnership, the youngest borrower must be at least 62 years of age to qualify for these loans.

A Home Equity Conversion Mortgage is a Federal Housing Administration insured loan that enables seniors to access a portion of their home's equity to obtain tax-free funds without having to make monthly mortgage payments. Yes, that's right: no more monthly mortgage payments billed to borrowers on the house. In fact, many borrowers receive monthly disbursements from their home equity each month to manage other expenses. Those 62 years of age or older with sufficient (usually 50% or greater) equity in their homes may be able to get cash needed to pay off their existing mortgage (thusly eliminating any form of monthly mortgage payment), continue to live in their homes and maintain the title, pay off medical bills, vehicle loans or other debts, fund necessary home repairs or renovations, and improve monthly cash flow. These loans are available for single family and two to four unit owner occupied homes, townhomes, or approved condominiums.

Qualifying for these special, senior-designed loans is far easier than traditional loans since loan approval is based upon equity in the home, not current income nor current assets of the borrower. In addition to eligibility, borrowers must complete a HUD-approved counseling session, maintain their homes according FHA requirements and continue to pay property taxes and homeowners insurance.

There are two types of Home Equity Conversion Mortgages: the HECM for refinancing a home's current mortgage and a HECM for purchasing a new home. Both HECMS allow borrowers to own their homes without a monthly mortgage payment.

The funds available to a borrower, also known as the Principal Limit, from a HECM depend upon a number of factors including the age of the youngest borrower, the lesser of the appraised value of the home, sales price or the FHA national lending limit, current interest rates, the balance of the existing mortgage (where applicable) and all mandatory obligations as defined by the HECM requirements. The funds available to a borrower may be restricted for the first 12 months after loan closing, due to HECM requirements.

Borrowers may receive their money in a number of ways that they choose. The tenure option delivers equal monthly disbursements to the borrowers for as long as at least one borrower lives in, and continues to occupy, the property as a principal residence. The term option delivers equal monthly payments for a fixed period of months selected by borrower. The Line of Credit option allows for unscheduled payments or installments, at any time and in the amount of the borrower's choosing, until the line of credit is exhausted. There are hybrids of tenure and term and also a single, lump sum payment. Funds may be used for whatever the borrower wishes.

A HECM has built-in safeguards that protect borrowers, and their homes. Since HECM loans are FHA insured, borrowers are always protected against lender insolvency, and can expect to receive their proceeds. Additionally, HECM loans are required by U.S. Department of Housing and Urban Development (HUD) to charge mandatory mortgage insurance. This insurance protects borrowers and their heirs in the event the loan balance goes higher that the home's value at the time of sale. Capped interest rates limit how much some interest rates can change during a specific period of time. After signing loan closing paperwork, borrowers also have a three day "right of rescission" to cancel the loan. This right of rescission applies to the HECM for refinance product, but does not apply to the HECM for purchase loan.

The HECM is a "non-recourse loan": if the home is sold to repay the loan, borrowers or their heirs will never owe more that the loan balance or the value of the property, whichever is less, and no assets other that the home may be used to repay the debt.

Far from being exclusively a mortgage to assist seniors in debt distress, many affluent senior borrowers with multi-million dollar homes and healthy retirement assets are using reverse mortgage loans as part of their financial and estate planning and are working closely in conjunctions with financial professionals and estate attorneys to enhance the overall quality and enjoyment of life.

To learn options, borrowers are recommended to consult a local and reputable loan consultant who is informed and qualified to fund reverse mortgages. A brief telephone conversation with a basic exchange of information is usually all that is necessary to understand what funds are available, given the borrowers personal situation.

For many seniors it is really possible to financially move forward?with a reverse mortgage!

Peter Holmes is an award-winning reverse and traditional mortgage consultant serving the greater East Bay, South Bay, and Contra Costa area. A member of the Better Business Bureau and licensed by the NMLS, he can be reached directly at 510-749-7772 for additional information.

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sharon dilon

To learn alternatives, borrowers are prescribed to counsel a nearby and trustworthy advance advisor who is educated and fit the bill to store home buybacks. A brief phone discussion with a fundamental

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