Reverse Mortgage Information
A reverse mortgage can be an excellent way for seniors aged 62 years or older to get some additional cash each month or a lump sum payment. Before applying for this loan type it’s extremely important to understand how a reverse mortgage works, there are certain criteria that must be met otherwise the borrower can default on the loan making it immediately payable.
Reverse Mortgage Information For Seniors
A reverse mortgage allows seniors to unlock the equity in their primary residence and receive this as cash. They have several payment options; tenure (fixed monthly payments for the length of the loan), term (fixed monthly payments for a fixed period of time), line of credit (money as they need it up to a predetermined limit). Lenders can also get a mixture of these that are known as; modified tenure (fixed month payments for length of the loan + line of credit if needed) and modified term (fixed monthly payments for a fixed period of time + line of credit if needed).
Before a senior can apply for a FHA/HUD reverse mortgage they must speak with an approved HUD counsellor. This counsellor is responsible for explaining the legal and financial obligations that come with this loan type. Once this counselling session has been completed the potential borrower will receive what is know as a ‘certificate of counselling’ which is required before the loan can be processed. A full list of these counsellors can be found at the official HUD site or by clicking here.
Once this done the borrower will need to seek the advice of a real estate agent, this agent will be able to give them a current valuation of their residence. The real estate agent should also be able to give them an approximation on how much the house is going to increase or decrease in value in the following years. This is important to know so that you can gauge how a reverse mortgage will affect the equity that’s in the home.
How Much Can be Borrowed?
The amount that can be borrowed is dependent on a number of different factors, the most common factors include: age, value of home, payment method selected, current interest rate and the reverse mortgage type selected. Some county’s also have hard capped limits on the amount that can be borrowed. Lenders generally limit the amount that can be borrowed to 40% of the value of the home and there is a hard limit of $625,000 for FHA/HUD reverse mortgages. If a senior is interested in more than that then they need to investigate what’s known as a jumbo or proprietary reverse mortgage.
Reverse Mortgage Costs
The costs of a reverse mortgage vary a lot but in general you can expect to pay approximately $6,000+ in total. This amount can be taken from the reverse mortgage itself, the only money borrowers need to get going is for the real estate valuation which usually costs around $300. The costs can be broken into the following items; origination fee (maximum cap of $6,000. 2% for the first $200,000 and 1% thereafter), mortgage insurance (2% of the real estate valuation), title insurance (varies state by state) and legal fees. In some cases a land/house survey will also need to be conducted which usually costs around $400.
Reverse mortgage lenders quite often charge a monthly fee, this ranges from $25-$35. It’s important to take all of these fees into account when doing calculations (our calculator makes it easy to take fees into consideration).
Want More Reverse Mortgage Information?
If you don’t understand something then we suggest that you fill out your information into the form at the top of this page. If you have a specific question you can always contact us or ask in the comments section.