HUD’s reverse-mortgage program (HECM)

Update 2-14-2017: CONSIDERING A REVERSE MORTGAGE? (Pulished by CFPB)

I have no dog in this fight. I’ve heard closing costs may be high (especially lender costs) to get the equity but for those who are 62 or older who are cash strapped and need supplemental income to live or other emergency needs, this is a source of funds.

How does a reverse mortgage work?

Reverse Mortgage is a way to borrow from the sizable portion of equity if you are 62 years of age or older. It is a financial arrangement withdrawing the eligible equity (it is not all of the equity – but lender determines ultimate level) in your home in (a) lump sum, (b) fixed monthly payment, or (c) line of credit after loan closing costs are covered. The home must be your primary personal residence and the loan continues until (a) owner dies or (b) total amount of eligible equity is depleted. The loan must be repaid from the proceeds of its sale after (a) owner’s death, (b) owner moves out, (c) house is sold. Now, in addition to any other restrictions, the homeowner agrees to continue to (a) pay homeowner’s insurance, (b) pay property taxes, and (c) maintain the home in a livable condition and retain its value (i.e., exterior paint, deck, roof, hvac, and other repairs).

What are some features and benefits to the reverse mortgage loan?

  • Supplement their monthly income;
  • Pay off an existing loan;
  • Use funds to make home improvements or maintenance repairs;
  • Pay for health care expenses; or
  • Pay off debts or any other legal expenditure.

What are the closing costs?

  • Loan Origination fee – A lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. HECM origination fees are capped at $6,000.
  • 3rd party fees about the same as a typical mortgage (i.e., appraisal, inspections, title insurance, surveys, recording fees, credit checks, title searches, etc.).
  • FHA Mortgage Insurance Premium (MIP) – both the up front fee and annual fee (annual fee never disappears)
  • Loan Servicing Fees – typically less that $40/month.

Source #1: FHA website on reverse mortgages.

Source #2: Some features, pros and cons of reverse mortgages from bankrate.com.

Source #3: AJC, Buyer’s Edge Section, 11-6-2016, A2.

References to products and services are not a specific endorsement, but the user must perform their due diligence and investigate whether the product or service is right for them. I welcome any or all comments that would help others.

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