Basics of Cape Cod Reverse Senior Home Loans
A reverse mortgage is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care).
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender.
In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
A couple of the main eligibility requirements are as listed below:
- 62 years of age or older.
- Must own the property, or have paid down a considerable amount (low mortgage balance left to pay off).
- No delinquencies on mortgage payments or any debt owed to the federal government.
- Must be occupying the property as a primary residence.
- Homeowners must also participate in a consumer session (a counseling session that educates the homeowners on the pros and cons of the loan).
There are many great benefits as well to a Reverse Mortgage Loan, there are no credit or income verification since the homeowners are not required to make any type of monthly payments, unlike any traditional reverse mortgage home loan, borrowers are not required to pay anything back.
However, it is important to be current on your monthly mortgage payments with no late payments in the past 2 years.
Background of Massachusetts Reverse Mortgages
Established in 1934, The Federal Housing Administration (FHA) offered mortgage insurance on loans through FHA-Approved lenders. The first Reverse Mortgage Loan was written in 1961 by Nelson Haynes of Deering Savings & Loan in Portland, Maine. The program was further developed in the 1970’s and was offered by many private banks. The loan was able to help seniors get money out for their homes but were not able to offer them the insurance to protect them like how they can today.
The main reason for the FHA mortgage insurance is to protect the lender’s investment in case a homeowner defaults on their mortgage. The FHA reverse mortgage loan is also known as a Home Equity Conversion Mortgage (HECM), and is paid back when the homeowner no longer occupies the property.
In late 1987 the Congress passed the FHA insurance bill that now insures reverse mortgages, giving seniors the protection that the program lacked before. President Ronald Reagan signed the FHA Reverse Mortgage bill passing it into law on February 5th of 1988.
The program then became quite popular in 1989, especially in the early 1990’s. Despite economic downfalls and other forward mortgage lending issues, reverse mortgages have continued to grow as a safe, government-insured program giving seniors the access to take out a good portion of the equity in their homes and never having to make a payment.
Any remaining equity left in the home after the loan has been repaid belongs to the homeowner. If there is not enough money from the sale of the home to repay the loan in full, the FHA insurance is then used to pay the difference in most cases. The FHA collects an insurance premium from all borrowers in order to provide this type of coverage.
Before the process of any paperwork for a reverse mortgage loan, homeowners are required to take a consumer class, meeting with an HECM counselor to discuss the program eligibility requirements, financial implications, and alternatives to obtaining a HECM and provisions for the mortgage becoming due and payable.
Upon the completion of HECM counseling, the homeowner should be able to make an independent and informed decision on whether or not this product will meet their needs.
Benefits of a Massachusetts Reverse Mortgage Loan
One of the major benefits of a Reverse Mortgage for many senior homeowners is that they are able to retain full ownership and control what happens with the home. Homeowners are even able to choose what method of payment they would like their funds received in, options such as:
- A single lump sum of payment in cash.
- A line of credit for a specific amount of time with a possibility of increase overtime.
- Monthly cash payments for a specified amount of time.
- A combination of any of the methods listed above.
The amount of cash paid out to the homeowner is usually based on their age, property location, and amount of equity that they have. The Reverse Mortgage is a loan based on interest rates and allows closing costs to be financed in in the loan.
There are many advantages of Reverse Mortgages, such as:
- No loan payments
- Tax free funds as long as you remain in the home.
- The loan is insured by the Federal Government.
- You and your heirs are protected in case of Housing Market Declines.
- Homeowners are able to choose the method of payment that they would like their funds received.
- Retain full ownership of your home.
Benefits for borrowers may vary, depending on age, Loan-to-Value, and what method payment of funds they decide to go with. Please check with your professional lender to see what you may be eligible for.
Borrower Requirements
Borrower Requirements are as followed:
- Be 62 years of age or older.
- Own the home that the loan is intended for.
- Must occupy the home as primary residence.
- Up to par/current with monthly mortgage payments.
- No debts owed to the Federal Government.
- Received prior counseling of the Reverse Mortgage Loan.
All property types must meet FHA property standards and flood requirements. The loan is repaid from the proceeds of the property sale including interest.
Mortgage Amount is Based On:
-The age of the youngest borrower
-Current interest rate on the mortgage
-Lesser of appraised value or the FHA insurance limit
Because of these factors, the loan amount may vary for each borrower.
Property Requirements
- single-family home or 2-4 unit home with one of the unit occupied by the borrower.
- HUD-approved condominium project.
- A manufactured home meeting the FHA requirements.
The borrower may be required to have a current appraisal on the property as the amount of an FHA reverse mortgage is based on the home’s value or the FHA insurance limit, depending on which one is lower.
Financial Requirements
Assets, income, monthly expenses, and credit history may be verified. Timely payment of Real Estate Taxes, hazard and flood insurance premiums may be verified as well.
Cape Cod Reverse Mortgage Loans
