A reverse mortgage – formally known as a Home Equity Conversion Mortgage (HECM) – is a special type of home equity loan for homeowners aged 62 and older The loan allows homeowners to access a portion of their home equity as cash. In a reverse mortgage, interest is added to the loan balance each month. and the balance grows. The loan must be repaid when the last borrower, co-borrower or eligible spouse permanently leaves the home. 1st Nations offers federally insured reverse mortgages, or HECMs.
WHAT IS A REVERSE MORTGAGE?
How Can I Use the Funds?
If you are 62 years of age or older and have sufficient home equity, you may be able to get the cash you need to:
- Pay off your existing mortgage
- Continue to live in and maintain ownership of your home.
- Pay off medical bills, vehicle loans or other debts.
- Improve your monthly cash flow.
- Fund necessary home repairs or renovations
- Build a “safety net” for unplanned expenses
With a HECM loan:
- Your existing monthly mortgage payment is eliminated.
- You stay in your home and maintain the title.
- Like a traditional mortgage loan product, your loan proceeds are taxfree and can be used as you choose
- Your loan is insured by the Federal Housing Administration (FHA)
To be eligible for a HECM loan:
- The youngest borrower must be at least 62 years of age.
- Your home must be your primary residence and have sufficient equity.
- You must have the ability to pay off your existing mortgage using the HECM loan proceeds or another source of funds.
- You must live in a single-family, two-to-four unit owner-occupied home, townhouse, approved condominium or manufactured home.
- You must meet financial eligibility criteria as established by the Department of Housing and Urban Development (HUD).
In addition to eligibility, the following conditions must be met:
- Complete a HUD-approved counseling session
- Maintain your home according to FHA requirements.
- Continue to pay property taxes. homeowners insurance and other ongoing housing expenses.
- Pay off any existing mortgage balance with HECM proceeds or another source of funds.
- You are not required to make monthly payments with a reverse mortgage.
- The total of the loan balance and accrued interest becomes due when the last borrower. co-borrower. or eligible spouse sells the home, moves out of the home, or dies.
- There are no penalties for making payments on the loan balance or paying off the loan at any time.
- A reverse mortgage is a non-recourse loan. If the loan balance exceeds the value of the home at the time of repayment, the bank cannot claim from you, your heirs, or your estate, more than the selling price of the home.
TYPES OF LOANS
1st Nations offers government-insured reverse mortgages following Federal Housing Administration (FHA) guidelines with fixed-rate and variable-rate options. These government-insured reverse mortgages are called Home Equity
Conversion Mortgages, or HECMs
HOME EQUITY CONVERSION MORTGAGE (HECM)
A HECM allows you to choose how much, or how little, of the available money you wish to borrow.
Options involving a line of credit or monthly disbursements require a variable interest rate. However, these options may keep interest accruals down since interest accrues only on the disbursed loan proceeds. With all the options, there will be some restrictions on how much money you can access in the first year
HECM for Purchase Loan
The HECM for Purchase can help homeowners buy a home without monthly mortgage payments. This loan enables borrowers to use liquid funds or equity from the sale of a previous residence to buy their next home in one transaction.
While you continue to enjoy benefits of homeownership, you also maintain the responsibilities of homeowner’s insurance, property tax payments, and other housing-related expenses.
Determining Your Proceeds
The available loan proceeds, also known as the Principal Limit, from a HECM loan depend upon:
- The age of the youngest borrower;
- The lesser of the appraised value of your home, sales price, or the FHA national lending limit;
- Current interest rates;
- The balance of your existing mortgage, if applicable. and;
- All mandatory obligations as defined by the HECM requirements, such as mortgage liens, back property taxes, or other Judgments on title. etc.
The funds available to you may be restricted for the first 12 months after loan closing due to HECM requirements. In some cases, the lender may require a portion of your proceeds to be set aside to ensure taxes and insurance are paid on time. Consult your Reverse Mortgage Specialist at 1st Nations for detailed program terms.
A HECM loan has built-in safeguards that protect you and the home:
Federal Housing Administration – FHA HECM loans are insured by the federal government. This FHA insurance generally guarantees that borrowers will continue to receive their authorized loan funds if their loan balance exceeds the value of their home. If the loan balance exceeds the value of the home, FHA may cover this difference for the lender when the loan is repaid. Also, you are always protected against lender insolvency and your proceeds will not be affected.
Mandatory Mortgage Insurance – HECM loan providers are required by (HUD) to charge mandatory mortgage insurance. This insurance protects borrowers and their heirs in the event the loan balance is higher than the home’s value at the time of sale.
Independent Counseling – Independent HUD-approved counselors provide you with objective information and help you understand how HECM loans work.
Capped Interest Rates – If your loan has an adjustable interest rate, there is a limit on how much some interest rates can change during a specific period of time.
Three Days to Cancel – After signing your loan closing paperwork, you have three business days to cancel the loan. This “Right of Rescission” applies to the traditional HECM loan, but does not apply to the HECM for Purchase loan.
Spousal Deferment – Eligible spouses have the same rights as borrowers and coborrowers to remain in the home, provided they maintain the property and related obligations.
Important Things to Consider
1. A Reverse Mortgage is a loan. There are costs associated with obtaining the loan. There are options to include these costs in the total loan balance at closing.
2. While you are not required to make monthly payments, interest accrues on the loan balance over the life of the mortgage.
3. Reverse mortgage proceeds do not impact Medicare or Social Security benefits but may impact Medicaid and Supplemental
Security Insurance. Consult with the appropriate government agencies for any effect on government benefits.
Interest on a reverse mortgage loan is only tax deductible for the tax year in which you make an interest payment. Consult with your tax advisor with questions concerning the tax deductibility of mortgage interet.
Are you interested in more information or ready to apply? Consider the following next steps:
- Speak with your Reverse Mortgage Specialist at 1st Nations to answer any questions and guide you through the process.
- Discuss this option with your trusted family members, friends or professional advisors.
- Work with your Reverse Mortgage Specialist to complete an application and gather all required documentation.
- Complete reverse mortgage counseling as required by FHA for all reverse mortgage applicants. Your Reverse Mortgage Specialist will provide you with a list of HUD approved counseling agencies in your area.
- Your Reverse Mortgage Specialist will help facilitate the appraisal of your home and your home inspection, if required.
- Attend your scheduled closing, sign all paperwork and receive your funds.