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Reverse Mortgages

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What is a Reverse Mortgage?

• A loan against your home that you do not have to pay back for as long as you live there

• A loan that allows you to take out the equity in your home without having to move or repay a loan each month

How it works

Reverse mortgages turn your home equity into:• Loan advances paid to you• Loan costs paid to the lender and others• Leftover equity, if any, paid to you or your heirs at the end

of the loan

FHA’s Reverse Mortgage

• HECM-Home Equity Conversion Mortgages is insured by the FHA (Federal Housing Administration)

• Reverse mortgages issued under the HECM program offer the highest loan amount and lowest interest rate for most home owners

• HECM mortgage ceiling is $625,500*

*This ceiling was raised with the economic stimulus package and may be reset.

Eligibility Requirements

• All borrowers must be 62 years of age or older• Own the property outright, or have small mortgage

balance• Occupy the property as your principal residence• Not be delinquent on any federal debt• Participate in a consumer information session given be

an approved HECM counselor

Common Uses of Funds

0

10

20

30

40

50

60

70 Healthcare costs

Repay existing mortgages

Reduce burden onchildrenHome repair &improvementPay property taxes

Daily expenses

Travel, something special

Gifts

Reverse Mortgage Provisions• Homeownership-you remain the owner of your house

and are responsible for paying your property taxes, homeowner’s insurance and for making needed repairs.

• You can use the money from the reverse mortgage to pay the various fees that are charged on the loan.

• When the loan ends, you or your heirs must repay all the cash advances plus the interest.

Reverse Mortgages Benefits• Allows you to stay in your home• Pays off existing mortgages on home• Simple to qualify because credit score and income are

not considered• No monthly payments are due as long as you live in

the home• Proceeds are not taxable

Additional Benefits• A reverse mortgage cannot get “upside down”, so

heirs will never owe more than the house is worth.• Heirs inherit the home and keep all equity after the

reverse mortgage is paid off.• The interest rate is lower than traditional mortgages.• The program is not well understood by most people

and requires an independent HUD counseling session prior to receiving the reverse mortgage .

Reverse Mortgages Pay OutYou choose how you want to receive payments:• Lump sum distribution

• Line of credit

• Monthly income

• Any combination of the above

Reverse Mortgages Disadvantages

• The closing costs are about the same as the cost of selling your home.

• Although Social Security and Medicare are not affected, Medicaid and other need-based assistance can be affected if you withdraw too much in one month.

• This product and selecting a mortgage company is confusing for most borrowers.

Reverse Mortgage Pricing & Fees

Mortgage Insurance Premium (MIP)• .01% - 2% • + 1.25% of loan balance

annually

Origination Fee• $2,500.-$6,000

Appraisal Fee• $400-$500

Closing Costs• $700-and up Servicing Fee• Up to $35 per month

Interest rate • Fixed (market based)• Variable (Libor &

Increment)

When is a Reverse Mortgage a Bad Idea?

• If you only need the money for a short period of time and can repay the full balance.

• Spouse or partner is not on title.• If you don’t need the money right away.• If you are being pressured into a reverse mortgage

to use proceeds for other investments.• On low-equity homes. The closing costs will be a

higher percentage of the home's equity.

Key Questions to Consider

• Who else should I involve in considering this loan?• Which counselor should I choose?• Have I given due consideration to all my choices?• When would be the best time to take out a reverse

mortgage?• What interest rate should I select?• Which lender should I choose?• How should I use this loan?

Exploring your Options• Property Tax Deferral (PTD) - no repayment required

as long as you live in your home

• Home Equity Loan

• Selling and moving

• Additional Resources

Points to PonderYou can analyze any reverse mortgage by asking:

• How much would I get?

• How much would I pay?

• How much would be left at the end of the loan?

Canceling the Deal• You have three business days after closing to cancel your

reverse mortgage.

• You must notify the lender in writing.

• The notice can be hand delivered, mailed, faxed or filed before midnight of the third business day.

Resources• www.aarp.org/revmort• www.reversemortgageguides.org• www.cccsdv.org

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Contact CLARIFI

• www.clarifi.org

• 800-989- 2227

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