Senior homeowners who wish to access a reliable and free resource that provides them with an overview of their options for obtaining a Home Equity Conversion Mortgage Loan can look to the National Council on Aging’s free booklet, Use Your Home to Stay at Home. This booklet serves as a guide to older homeowners who are considering obtaining a Reverse Mortgage and who wish to research the product
According to the Department of Housing and Urban Development, prospective HECM borrowers must attend a counseling session with a HUD-approved counselor before they can submit the paperwork for the loan. This counseling session is meant to ensure that the borrower understands the loan’s framework as well as all of the HECM’s intricacies and borrower-responsibilities.
Taking out a HECM loan is a serious commitment and financial advisors caution that borrowers should do their research and have a good grasp of the loan before they head into the counselor’s office. The counseling session, the consultants say, should be used to ask specific questions that the potential borrower would like to review which came about as a result of his/her previous research.
In addition, reading the National Council on Aging booklet gives the potential borrower time to think about all of the loan ramifications and honestly consider whether the loan is the best product for his or her specific situation.
Use Your Home to Stay at Home offers a wide range of data about a HECM loan. Some of the points that the booklet presents include:
1. Reverse mortgages are reverse loans which are available to homeowners age 62 and older. The loan enables the homeowner to turn the equity that s/he has in his/her home into cash. This is cash that can be used for living expenses, home repairs, remodeling, debt repayment or other expenses. Unlike a regular mortgage the HECM loan doesn’t involve monthly payments. The loan is repaid when the owner sells the home, upon the owner’s death, or when the home is no longer the primary residence of the homeowner.
2. To be eligible for a HECM loan the borrower must live in a single family home, or home of up to four units, as a principal residence. There are also some eligible condominiums and manufactured homes are also eligible.
3. Once the Home Equity Conversion Mortgage has been obtained the homeowner will receive
a. a fixed monthly amount for a specified period of time
b. a fixed monthly cash benefit for as long as the homeowner lives in the home
c. a line of credit that gives the borrower the flexibility to draw on loan proceeds at any time up to an established limit
d. a combination of a monthly distribution and line of credit
e. a lump sum payment (this option requires special authorization and is available in limited cases, such as when an individual has to pay for health care or pay off debits)
4. The loan amount may vary according to the borrower’s age, the current interest rate, the appraised value of the property and the initial mortgage insurance premium. The borrower must agree to remain current on homeowner’s insurance premiums, property taxes, utilities other applicable local assessments. The property must continue to be maintained.
5. Reverse mortgage payments are subject to taxes. Income from Reverse Mortgages doesn’t affect Medicare or Social Security benefits (it may, however, affect Medicaid benefits).
6. The homeowner retains title to the home after s/he’s taken out a reverse mortgage. When the home is sold, the loan amount, interest and other HECM finance charges and fees are paid back and any remaining equity will be transferred to the homeowner’s estate. No debt will be passed along to the borrower’s heirs.
7. Potential borrowers should review some tips for HECM borrowers:
a. The loan involves third party costs including origination fees, mortgage insurance premiums and other closing costs. The lending institution may also charge servicing fees that must be paid throughout the course of the mortgage.
b. The balance of a reverse mortgage increases over time and interest will be charged on the outstanding balance each month.
c. Some HECMs have fixed interest rates while others have variable interest rates which change, depending on market conditions
d. A reverse mortgage can use up all of a home’s equity but the borrower, and the borrower’s heirs, will never owe more than the value of the home when it is sold. Heirs can repay the loan in full if they want to retain ownership after the property owner has died.
Copies of Use Your Home to Stay at Home. are obtainable via the National Council of Agine. Call (800) 510-0301 or download a copy at ncoa.org.