Frequently Asked Questions (FAQs) on Reverse Mortgage 2019
I think you’ll agree with me when I say…
There’s a lot to learn when it comes to reverse mortgages.
However, with the limited research options and expenses that come with consulting professional advice, getting the right information might be challenging.
Well, lucky for you, here is a comprehensive Q&A of the most frequently asked questions on reverse mortgages.
Hopefully, you will find the answer you’re looking for. If not, please be sure to click here and see how much equity you can release and chat with an expert for free.
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Q: When Does the Reverse Mortgage Need to be Paid Off?
A: When you sell the estate or no longer occupy your house as your primary residence for a period of 12 months or longer, or when you don’t adequately and regularly maintain the property taxes and homeowner’s insurance.
You are also legally bound to pay when the last surviving mortgagor passes away, as that is when the reverse mortgage becomes due. Your heirs will have up to six months to refinance your home if they are opting to live on the premises or keep the house and up to 12 months to sell.
Q: What Are the Disadvantages of Getting a Reverse Mortgage Loan?
A: It has high fee rates: The upfront fees, the closing, insurance costs, and initiation fees for a reverse mortgage loan are high, as per the ration of low-income earners to top income earners – they marginally higher than the costs charged for refinancing.
However, one can finance the fees from the reverse mortgage itself, so there are options to avoid “out of pocket” expenses at the closing period.
It has ‘accumulating’ interest: Unlike other loan payment plans, the reverse mortgage loan does not involve monthly payments. The credit amount – the sum you will ultimately have to pay back – grows more significant over time.
Therefore, every month, the sum of interest you will, in due course, owe increases – it accrues. However, the amount you owe on loan will never outstrip the value of the estate when the loan becomes due.
Most reverse mortgage mortgagors appreciate that they don’t have to make monthly payments and that the interest and fees are bankrolled into the loan. One can view this feature as a drawback since the amount paid in the long-run can be terrifying. It is, however, also a massive advantage for those who want to stay in their homes and improve their immediate finances.
One cannot tap enough cash: If you have a lot of home equity, you might be exasperated that a reverse mortgage plan only allows you to use some of it.
The HECM loan limit’s presently set at $726,525, meaning the amount you can borrow depends on this value, even if your estate has a higher value. Your actual loan amount is stipulated by a calculation that uses the appraised value of your property (or the lending limit above, whichever, is less), the amount of money you owe on the estate, your age, and current interest rates.
It seems complex: It is, basically, a mortgage in reverse – a concept that can be hard to get your head around.
With a traditional mortgage, you borrow cash up front and pay the loan over time. A reverse mortgage loan, on the other hand, is one where you accumulate the credit over time and recompensate it in full when you and your spouse (if applicable) are no longer living in the estate. If there is any equity remaining at that time, it all belongs to you or your heirs.
Click here to see how much equity you can release and chat with an expert for free.
Q: Can You Get Out of a Reverse Mortgage?
A: Yes, you can.
Other than paying off the entire loan balance, one way to get out of a Home Equity Conversion Mortgage (HECM), also known as a Reverse Mortgage is by enacting the ‘right to rescission.’
Thanks to the Truth in Lending Act, the reverse mortgage clients have what is called the “right of rescission,” which is usually enacted in a period of 3 business days.
In other words, even with all the tiring signing of mortgage documents, a borrower may rescind (cancel) the agreement within three business days.
If you, as the mortgagor, opt to rescind, the lender has 20 days to cancel the mortgage contract and return any fees and closing costs within 20 days.
The right of rescission offers people the ability to change their mind within the three business days and safeguards them against being charged any cancellation penalties.
Q: Is a Reverse Mortgage Secure?
A: Yes, in fact, it one of the most secure financial products.
Here are the reasons why:
- It is FHA insured; the program’s most crucial protection scheme – if something were to happen to your creditor, and they went out of business, the FHA insurance guarantees that you will still access your loan proceeds.
- It is non-recourse in nature – even if your reverse mortgage loan ends up exceeding the value of your house, you will not have to repay more than what it’s worth at the time of sale.
The aspect also applies to your estate: when you die, your heirs will not have to pay back the lender more than the estate’s value at the time of sale if the loan balance exceeds it.
- You are required to go for counselling–all prospective HECM borrowers are needed, by the law, to undergo counselling through a Department of Housing and Urban Development-approved, third-party counselling agency.
The counselling aim is to ensure you understand how the loan works and how it can apply to your specific situation.
- There is a cross-selling ban –reverse mortgage originators are forbidden from “cross-selling” specific financial products, under the Housing and Economic Recovery Act of 2008; they may not initiate a reverse mortgage and then require you to buy a commercial product or insurance investment with them.
Also, the lenders are banned from being associated with or partaking in trading other sorts of financial or insurance products.
Q: What is a Proprietary Reverse Mortgage?
A: It is a loan that allows senior homeowners to retrieve the equity in their homes via private corporations.
They are not extensively available and make up a small percentage of the reverse mortgage market.
Home equity conversion mortgages (HECMs), which are indemnified and firmly regulated by the government, make up the more significant part of the reverse mortgage market.
Q: What is the Reverse Mortgage Application Process?
A: The application process typically takes about 30-45 days from the beginning to the end, and it has five significant steps:
- The initial application –it legally sanctions the lender to start the application process, but he/she cannot incur any expenses on your behalf until the second step, counselling, is complete. This step is not binding, and one can decide to cancel it at any point during the process. It will specify the reverse mortgage fees, interest rates, and loan amounts.
- Reverse mortgage counselling–Even if the application is complete, the lender is not legally allowed to incur any expenses on the applicant’s behalf, like ordering the appraisal, until they have submitted a signed HECM Counselling Certificate. It serves as proof that they have completed the mandatory counselling session with a HUD-approved counselling agency. In most states, counselling can be completed before or after the initial application.
- Appraisal – it institutes the legal value of the applicant’s property, and an FHA-approved appraiser must steer it. It must also follow a particular FHA format, so that, even if a proprietor has already had an appraisal, it will most probably have to be re-appraised.
- Underwriting – the lender will sanction the applicant’s legal ownership of the estate by carrying out a title search and buying title insurance. They will also work with the claimant to clear up any matters of trusts, unpaid liens against the title, bankruptcies, among others. Once the lender is done underwriting and has sanctioned the application, its status will be changed to “clear to a close,” meaning that everything is complete and the final closing date can be set.
- Closing –at this point, the lender and the applicant set a closing date where a notary or attorney meets with the claimant to sign the final closing documents. It is the step when the applicant has an opportunity to review the closing documents to ensure that the interest rate, fees, and loan amounts are what they expect in the long run. Once signed, the application goes into a three-day “right of rescission” period.
After this waiting period, the title company then presents a check to the proprietor (typically by overnight mail) if proceeds are accessible from the reverse mortgage. If the claimant was using a reverse mortgage to pay off a current lease, the title organisation will also send the mortgage payoff amount to the lender.
How much money could you release?
A reverse mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.