I think you’ll agree with me when I say…
You can never have enough information when it comes to reverse mortgages. That said here’s a comprehensive guide that will help you get all the facts when it comes to the stipulated measures involved with taking out a reverse mortgage.
10 Reasons Why Reverse Mortgages are Great Financial Products
Reverse mortgages1 schemes have come a long way since their inception in 1961. Through all these years, there have been several misconceptions about what they are and how they work. Reverse mortgages have pure intention to assist you in getting the retirement you deserve.
The negativity that came about in regards to reverse mortgages stemmed from certain practices in the 1980’s when reverse mortgages were not yet fully monitored by the U.S. Department of HUD. However, since then, reverse mortgages have become one of the most greatly regulated and more secure mortgage available on the market.
Here are some but a few of the reasons why reverse mortgages are worthwhile and ethical financial tools you can trust today:
#01. It Has A Federal Guarantee
In 1987, the FHA (Federal Housing Administration2 ) sanctioned federal insurance for reverse mortgages with the Housing and Community Development Act.
For you, the borrower, this assured you of the availability of funds. For the providers, this guaranteed them compensation if ever the loan balance exceeded the estate’s value.So FHA ensures that you pay an upfront mortgage insurance premium when you take out a reverse mortgage that varies based on the loan program you select. You will also have to finance an annual mortgage insurance premium of 1.25% of the mortgage balance.
The FHA insurance offers security for borrowers so that in the event something were to happen to your provider and they went out of business, they guarantee you will still have access to your loan proceeds.
#02. It Has Non-Recourse Provisions
It authorised that the FHA-insured reverse mortgage to be a non-recourse3 loan, thus offering added protection,unlike other mortgages. It means that your estate is the only collateral that your lender can take to pay back the loan and that even if your reverse mortgage loan ends up exceeding the value of your residence, you will never have to repay more than what your estate is worth at the time of sale.
Therefore, you don’t suffer from any personal liabilities.
#03. It Requires You to Go Through Financial Counselling
As a prospective HECM borrower, the order requires you to first undergo counselling through an approved third-party counselling agency. The counselling aims to ensure that you comprehend how the loan works and how it can apply to your specific circumstances.
Counselling sessions also offer you the opportunity to inquire about words you don’t understand. The counsellors are required to assess your knowledge before granting a certificate that allows you to move forward in the loan application process.
Since a third-party agency steers the counselling, you can rest assured that you will be receiving objective facts from someone who has your best interests at heart.
The advice is to educate you so you can make an informed resolution.
#04. It Features A Cross-Selling Ban
The order forbids reverse mortgage lender from “cross-selling”, under the Housing and Economic Recovery Act of 2008.
They’re not permitted to originate a reverse mortgage and then require you to buy a financial solution or insurance investment with them.
Moreover, the ruling forbids reverse mortgage provider from being allied with or taking part in selling other types of financial or insurance solutions.
Even though you, as a borrower, have the liberty to do with your proceeds as you wish, this rule safeguards you from who might steer you into purchasing you don’t want or require.
#05. There’s the ‘Lifetime’ Reverse Mortgage
In 1991, It came up with new regulations that made reverse mortgage insurance available to all FHA providers. Subsequently, Lenders Home first and Home Equity partners could then devise the first “lifetime” reverse mortgage4 program, enabling monthly disbursements to span the life of the homeowner instead of only a limited amount of time.
The “monthly payment for life” is restricted to the tenure or modified tenure plans. You have to keep your estate as a permanent residence, continue paying the required property taxes and home insurance and keep up with simple home improvements.
Your provider will give a specific amount of capital for a line of credit, and you can then outlive the monthly payment stream.
#06. It’s NRMLA- Founded
In 1997, Jeffrey Taylor and Peter Bell established the National Reverse Mortgage Lenders Association (NRMLA) with the intent to improve the professionalism of the reverse mortgage industry. Since then, it has become the voice of the reverse mortgage industry, endeavouring to offer resources, educate consumers, and endorse a positive experience for both.
Also, according to the ruling, NRMLA members must adhere to a stringent Code of Ethics & Professional Responsibility.
#07. It Features Non-Borrowing Spouse Rights
In 2014, HUD established new procedures in regards to non-borrowing spouses for loans closed after August 4, 2014. These new rules ensured that the non-borrowing spouse would be allowed to stay in the house even after their borrowing spouse has passed.
#08. There are Limits to Reverse Mortgage Rates & Fees
In 1999, AARP and NRMLA both extended their backing for nationwide scope on origination fees charged by provider. Congress sanctioned this recommendation in 2000. With their directives and statutes firmly in place, the reverse mortgage rates and fees your lender charges you are monitored and controlled.
Congress established the reverse mortgage’s method of determining the origination fee. It guarantees that there are no “excessive fees” in this scheme. The Federal Truth in Lending Act (TILA) asks provider to reveal the loan and amortisation terms, costs of the loan, like the APR and any line of credit charges.
#09. There Are Reverse Mortgage Exams
In 2000, an exam designed in a way that reverse mortgage counsellors comprehend how 425 counsellors finalised the functions in 43 states throughout the nation. It was the chief official reverse mortgage product financial counselling exam assists counsellors to help applicants in understanding.
#10.There Are New Reverse Mortgage Rules
The FHA put into play new guidelines meant to encourage homeowners to tap into their equity5 tactically, and use it as a long-term financial planning tool instead of as a crisis management tool.
It is not a slam-dunk, no-brainer decision. Depending on the provider you choose and the terms and conditions, the plan can serve you well and safeguard you from various risks, but you also need to remember that it also factors in many drawbacks that are worth considering.
Therefore, you need to approach it with open eyes and be sure to explore other alternatives, if need be. You should also consider consulting your adviser for better direction.
If you, however, need more information, be sure to get a reverse mortgage quote and also get to chat with an expert.