Reverse Mortgage Loans
A Reverse Mortgage is a special type of mortgage that enables homeowners aged 62 years or older to tap into the equity they have accumulated in their homes. There is no repayment required as long as the borrowers continue to occupy the home as their primary residence.
The type of loan program we offer is called The Home Equity Conversion Mortgage (HECM).
This mortgage program is available from HUD-approved lending institutions and is insured under the government’s Federal Housing Administration (FHA) insurance program. As such, it is subject to FHA maximum loan amounts in each particular area.
This program offers unique features and options for the homeowner, and Daryl Roe and California Funding are pioneers in the Reverse Mortgage field, highly experienced and qualified to assist seniors with this type of loan. We have been doing them longer (and better) then anyone else on the West Coast!
Following are some of the frequently asked questions to help you learn more about them. Many helpful brochures are available from California Funding, as well as Online resources to assist anyone interested in these mortgages. There are also additional questions and answers on Reverse Mortgages located in our Frequently Asked Questions category.
Q: How does a HECM differ from a home equity loan?
A: While this loan enables you to turn the equity in your home into spendable dollars, there are important differences between them. With a home equity loan, you must make regular monthly payments to repay the loan. These payments begin as soon as the loan is closed, and you must qualify for these payments with regular monthly income. If you fail to make the monthly payments, the lender can foreclose, and you could be forced to sell your home. With our reverse mortgage program, you do not repay the loan as long as the home remains your principal residence. Your income is not considered in any qualifying for the loan.
Q: Who is eligible for a HECM?
A: You, and any co-borrowers, must be at least 62 years of age and should either own your home free and clear or have a low outstanding mortgage balance that can be paid off at loan closing with proceeds from the reverse mortgage. Your home must be a single-family residence or two- to four-unit dwelling. Condominium units are eligible in approved developments. You also must agree to accept mortgage counseling from a HUD-approved counseling agency. And family members are strongly encouraged to attend these counseling sessions and any meetings with your lender.
Q: What are the minimum and maximum amounts that I can borrow?
A: The maximum amount you can borrow is based on a formula that factors in the age of the youngest borrower, the interest rate and the allowable maximum claim amount. The maximum claim amount is the lesser of the appraised value of your home or the maximum principal amount allowed for an FHA or FNMA in your area.
Q: Will a reverse mortgage affect my Social Security, Medicare, Supplemental Social Security (SSI), or Medicaid benefits?
A: These reverse mortgage payments do not affect your Social Security or Medicare benefits. This is your equity you have accumulated. In the federal Supplemental Security Income program, however, beneficiaries must keep their liquid resources under certain limits. If you do not spend your reverse mortgage advances in the month received, then such funds are considered part of your liquid resources and may adversely affect your eligibility for SSI. Therefore, if you are an SSI recipient, you should only draw the money you actually need to spend each month. Regulations for state-administered programs such as Medicaid, AFDC, and food stamps for state-funded welfare programs all have different eligibility requirements. It is suggested you consult with a benefits specialist at your local Area Agency on Aging to determine how reverse mortgage payments may affect your situation.
Q: What types of payment plans are available with a HECM reverse mortgage?
A: A borrower choosing a HECM may choose from five payment options: term, tenure, modified term, modified tenure, and line of credit.
Under the term option, you may receive equal monthly payments for a fixed period of time selected by you. Under the tenure option, you may receive equal monthly payments for as long as you occupy the home as your principal residence. Under the line of credit option, you may draw up to a maximum amount of cash at times and in amounts of your choosing, as long as you occupy the home as your principal residence. The modified tenure plan allows you to set aside a portion of loan proceeds as a line of credit and receive the rest in the form of equal monthly payments for a fixed time period as specified by you. The modified term plan allows you to set aside a portion of loan proceeds as a line of credit and receive the balance as equal monthly payments for a fixed time period as specified by you. If you select either of the term plans, you can remain in your home after the end of the loan term without starting repayment. The same is true if you have withdrawn the maximum amount under a line of credit or tenure payment plan. Remember, repayment of a HECM does not begin until you no longer occupy your home as your principal residence.
Q: Are there any restrictions as to how I may use the money I receive – what if I want a new car, a swimming pool, or a cruise around the world?
A: There are no restrictions. It is your equity- your money- you may spend it in any way you wish. Enjoy!
Q: How will the amount of money I receive be calculated?
A: The amount to be received depends on the age of the youngest borrower, the expected interest rate, the home value, and the length of time you choose to receive payments. Call for estimates and comparisons of the programs based on your circumstances.
Q: Will the payments stop or will I be forced to sell or vacate my home if the money I owe on the reverse mortgage exceeds the value of my home?
A: ABSOLUTELY NOT! As long as you live in your home as your primary residence, your payments CANNOT stop nor can you be forced to sell or vacate your home. You pay FHA insurance to cover all excess debt over your home’s value.
Q: Will my heirs owe anything to the mortgage lender if I die?
A: Upon the death of the last borrower, the loan balance is due and payable. Your heirs may either repay the loan and keep your home, refinance the home and keep it, or sell the home and pay off the loan balance, keeping any remaining proceeds. If the loan balance is more than the home sale, the FHA insurance will cover any unpaid balance, releasing the heirs from any further financial obligations. In the case of FHA and FNMA reverse mortgages, the larger balance is forgiven. You will never owe more than the house is worth.
Q: What if I decide to sell my home?
A: You may sell your home at any time. During the loan life you retain title to your home. If you sell your home, the loan balance will have to be paid at closing. You will receive any proceeds exceeding the loan balance and cost of the sale. And there is no prepayment penalty!
Q: Can I sell my home to my children and continue to live in it?
A: If you sell or give title in your home to ANYONE, the loan will become due and payable at the time of transfer.
Q: Can I meet or call someone locally to have the reverse mortgages explained to me in person?
A: Yes. Contact Daryl Roe at California Funding. We have specialists who are highly trained and experienced in handling Reverse Mortgages. They will be pleased to meet with you and give you all the details of the programs.
Q: Will I have to pay any fees to obtain a Reverse Mortgage?
A: Yes, you will pay an origination fee and mortgage insurance for the HECM and other closing costs. However, these fees are generally financed; that is, these items may be included in your loan balance so that you do not have to pay cash for them.
Q: Are there any Prepayment Penalties with Reverse Mortgages?
A: No, not with the FHA-insured Reverse Mortgages offered by California Funding. You may prepay any part of the outstanding principal balance without a penalty. Good question. It is important to inquire about details such as these.
Q: How is interest charged for a Reverse Mortgage?
A: There are two choices – either Fixed Rate or Adjustable Rate. The Fixed Rate is in place for the life of the loan and the Adjustable Rate will change monthly with the market, but has a life- time cap of 10% over the start rate. A change in the interest rate has no effect on the amount or number of loan advances you receive. Interest rate changes will cause the loan balance to grow faster with a higher rate or slower with a lower rate, but will not affect your monthly income or line of credit.
Q: Can I be forced to sell or vacate my home if the money I owe on the loan exceeds the value of my home?
A: No. As long as you continue to occupy the property as your principal residence and abide by the loan agreement, which states that you are responsible for property maintenance and payment of all property taxes and insurance, you can stay in your home as long as you choose. No deficiency judgment may result from your reverse mortgage loan.
Q: Where can I learn more about Reverse Mortgages?
Q: I currently have a reverse mortgage and am quite pleased with it. But the other day I overheard a conversation about refinancing reverse mortgages. Is this possible and if so what are the advantages?
A: Yes you can refinance a reverse mortgage. There are several advantages to doing this. For example:
Since your first reverse mortgage, you are a few years older and this would entitle you to more dollars.
Your home value is probably higher now; this too increases your entitlement.
The FHA loan limits have increased for all counties in California. This can allow more cash to be available to you.
Of course, each situation is unique and needs to be evaluated individually.
Q: We currently have a mortgage balance on the home we own. Is it possible to use a reverse mortgage to pay the current mortgage off and allow us to have no payment at all?
A. Yes, it is possible. With our county loan limits now higher, we have more flexibility to pay off higher balances and in some cases allow for cash after the payoff. Again, it is a case by case analysis.
Q: Recently our Dad passed away and our Mom is in need of in-home care but we are unable to financially provide the needed funds to keep her in her home. Is it possible to obtain a Reverse Mortgage and structure it so that the funds would be used to help keep our Mom in her home?
A. Yes it is. We have had several situations where the loans were structured so that every three or four month’s monies were released from a Line Of Credit that allows for the payment needed for the caregivers. This is considered one of the best uses of Reverse Mortgage funds, allowing the homeowner to stay in their familiar surroundings.
Q: I was having lunch with some friends and Reverse Mortgages came up. I mentioned that I had one with which every month I received a check which, by the way, is tax free. One of the ladies in our group said, “What happens when the value of the property goes down, and the mortgage balance goes higher than the value, will your checks stop?” I told her that I didn’t think so, but I would check into this. Can you help?
A: You were correct in your answer to your friend. The key is as long as you live in your home as your primary residence, even if you live to be 105 years young, those checks will still be deposited into your account. Thank you for asking.
Q: I have talked with several of my friends about Reverse Mortgages. There seems to be so many different opinions, pros and cons regarding this program, do you have any suggestions?
A: I have been involved with Reverse Mortgages for years and have found that education is so important. I encourage everyone to research and study this product, either with our materials or through AARP. It has a really great brochure that is available to everyone by just calling toll-free 888-687-2277. They will forward you a copy free of charge. Also, with Reverse Mortgages, even though independent counseling is required, we prefer that our borrowers go through the exercise of educating themselves whether they proceed with a loan or not. The counselors are trained to give you, as a potential borrower, as much information as possible because you may not know it, but you could have other options available which are not always explained. Also, we are finding that Reverse Mortgages can be used as an excellent financial retirement tool. We have worked with many Financial Advisors, using this product as a long-term option for retirement, either to pay off your present mortgage and leave you debt-free or to provide additional income, or both. If you have any more questions, please call.