Q&A: Advisors

Q&A for Advisors

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Additional Q&A for SeniorsHeirsAdvisors and Realtors.

Advisors

A reverse mortgage loan is a unique loan that allows homeowner(s) 62 years of age and older to draw on the equity in their home.  The unique aspect of this loan is that it does not require repayment until the borrower(s) sell or move out of their home, dies, fails to maintain the home, or does not otherwise comply with all obligations of the loan. Created by The U.S. Department of Housing and Urban Development (HUD), this federally insured loan goes to help those in the senior population meet their financial needs and ease money worries for greater peace of mind.

How does the “growth aspect” of the Line of Credit work?

The Line of credit will grow (monthly) at the current interest rate + 1.25% on the “unused portion” of the line of credit.  (ie.  You have a total LOC of $200,000.  You pay off the existing loan of $100,000 and you now have access to $100,000).  If you do not access the line over the next year and your current interest rate is 3.25% + the MIP of 1.25% for a combined rate of 5%.  This equates to ~$416.67 in month  one , $418.40 in month two and so on.

What is LIBOR?

LIBOR stands for “London Inter-Bank Offered Rate.”  It is based on rates that contributor banks in London offer each other for inter-bank deposits.  In October of 2007, the U.S. Federal Housing Administration (FHA) ruled in favor of insuring ARM loans based on the one-year LIBOR index. At the same time, HUD also ruled to allow the one-month LIBOR to be used for the purpose of calculating adjustments to interest rates for monthly adjusting Home Equity Conversion Mortgage (HECM).

What if my clients move out temporarily, will the loan become due?

No.  FHA’s policy states that if a borrower remains, ” out of the home” for 12 consecutive months, the loan would become due. Please note the home must still be considered the borrower’s primary residence.

Will my clients get taxed on the money they receive from a reverse mortgage loan?

No.  The equity in your clients home is considered their money and not income.  All the funds from a reverse mortgage loan are tax free. (Borrowers should seek professional tax advice regarding reverse mortgage loan proceeds.)

Do reverse mortgage loans have a prepayment penalty?

No.  You can prepay a reverse mortgage loan in full at any time without penalty*.  Partial prepayment is also allowed for certain products, which in turn increases the available line of credit.
*HUD Collects a full month of interest regardless of the day the loan is paid off.  Ie  loan is paid in full on the 10th of the month…HUD collects interest to the end of the month.

How does an adjustable rate affect my clients’ monthly payments?

Your monthly payment will be determined at closing and an adjustable/variable rate will not affect how much you receive each month. Please note that it effects the amount that must be repaid.

Are interest rates fixed or adjustable?

Both.  How your cleint intends to use the money will determine which product(s) will be more beneficial to them.

What fees are associated with a reverse mortgage loan?

The fees for an FHA Reverse Mortgage Loan are very similar to those of an FHA Forward mortgage.  For example, an origination fee is paid to the broker/lender, an MIP (mortgage insurance premium) is paid to HUD, an appraisal fee, a flood certification fee, a doc prep fee, title and settlement fees, and other standard closing costs.

Will my clients lose their Government Assistance Products if they get a Reverse Mortgage Loan? (Social Security, Medicare, Medical, Medicaid and or Supplemental Security Income (SSI)?

Generally speaking, Social Security and Medicare are NOT affected when obtaining a Reverse Mortgage Loan, however, the proceeds from a reverse mortgage loan are counted as “liquid assets” (Like money in savings accounts) which could adversely impact their eligibility for products such as SSI and Medicaid if their total liquid assets are greater than these products allow.  We always recommend clients consult the administrator of these plans, an attorney, and/or an accountant before deciding on a reverse mortgage loan.

What if my clients already have a reverse mortgage loan, can they still refinance?

Yes.  Depending on their homes current market value and loan balance, they may be eligible able to refinance, allowing them to extend or increase their current benefits. The length of time since the last refi may also impact the ability to get a reverse mortgage loan.

Should my clients use an estate planning service to find a reverse mortgage loan?

No. Borrowers are prohibited from paying reverse mortgage loan proceeds to estate planning services in most circumstances.

What types of properties are eligible?

Eligible properties include: Single-Family homes, 2-4 unit properties, manufactured homes built after 1990, FHA Approved condominiums, Planned Unit Developments (PUDS) and newly constructed properties (Certificate of Occupancy must be issued prior to 1009 application date).

Is there a document that provides a list of potential fees?

Yes. Total Annual Loan Cost, or “TALC” disclosure. Federal Law requires all lender to provide your client a “TALC” which displays the total transaction costs over the projected life of the loan.

Are Reverse Mortgage Loans safe?

The FHA HECM Reverse Mortgage Loan is regulated, insured and backed by HUD, an agency of the Federal Government.

Are there any income or credit requirements?

Yes. A Financial Assessment is completed by a HUD approved underwriterfor all borrowers. This takes into consideration both Willingness (Borrowers history of making payments on time), and Capacity (Borrowers current income and assets vs. expenses) to determine the borrowers Capacity to meet their financial obligations during the term of the loan.

Can my clients take title to their property in a Trust?

YES.  We will request a FULL copy of the trust which will be reviewed by the lenders legal counsel to ensure the trust meets current lending requirements.

Are reverse mortgage loans only for desperate seniors?

The reverse mortgage loan is a financial tool used by seniors from all walks of life to enhance their retirement years, not just by those facing difficult financial challenges.  Many seniors now realize that they can utilize a reverse mortgage loan to unlock the value of their home so they can enjoy a better quality of life during their retirement years.