There’s Gold in Them Thar Bills!
If this were an old western movie script the phrase “Hec’m” might just be a contraction for “Heck, Ma’m,” as in “Heck, Ma’m, there’s gold in them thar hills! But we’re talkin’ money not movies and the gold is not in “them thar hills” but in “them thar bills” – or at least what’s generating them. Bills as in gas, electric, water, roof repairs, painting, wallpapering, landscaping and, especially, principal payments on your home mortgage.
We’re talkin’ money as in retirement money and “Hec’m” is really H.E.C.M. which stands for Home Equity Conversion Mortgage better known as a reverse mortgage. All those dollars you spent maintaining your house and its market value and all those monthly mortgage payments that you made over the last many years may now hold the key to your retirement. But even if you are just starting out as a young, new homeowner or, maybe, if you are someone with a mortgage half paid off and fifteen years to go to retirement, this product should be part of your financial planning.
Unlike a conventional “forward” mortgage which funds the purchase of a home and requires you to make monthly or bi-monthly payments of principal and interest, a Home Equity Conversion Mortgage lender pays you. Your loan balance starts at zero and increases each time you receive money.
You do not pay most of the upfront costs associated with both “forward” and reverse mortgages such as loan origination fees, legal fees, title insurance, loan servicing fee, FHA Mortgage Insurance Premium, etc., because they are paid for from the first advance under the loan. The loan balance also increases by the amount of interest that you owe on the funds you receive at closing and thereafter. The property appraisal and credit report fees must be paid up front by the borrower since those services are provided before the loan closes.
But why should you apply for a reverse mortgage?
Because it may allow you to retire if you do not have sufficient funds to do so or, if you do, it can provide the money to make retirement more secure and enjoyable.
The money can be used for any purpose.
There are six ways that you can receive the money with a lump sum, fixed monthly payment or draws against a line of credit, or a combination of all three, the most popular.
The line of credit available to you grows each year by a percentage equal to the interest rate on your loan.
All the funds that you receive are tax free.
You retain title to your home.
You never have to repay the principal and interest as long as you reside in your home.
You may sell your home at any time and repay the loan with no prepayment penalty.
You can leave your home to your children or heirs; they can pay off the loan and keep the house or sell it to do the same; any equity in your home after the loan is paid remains theirs.
The FHA guarantees the loan so that you will receive all the funds that you were approved for even if your lender goes out of business.
FHA’s guarantee also insures that neither you nor your heirs will ever have to repay more than your home sells for; if it sells for less than the balance of the mortgage, FHA pays the difference.
Social Security and Medicare benefits are NOT affected (Supplemental Security Income may be in some cases).
Qualifying is very simple:
You and any other person on the title must both be 62 to apply.
Your home being mortgaged must be your primary residence.
Your home should have substantial equity in it; a small remaining “forward” mortgage balance can be repaid from loan proceeds.
There are no income, asset or credit requirements.
How much you will receive in loan proceeds depends on your age at the time of application, the value of your home and whether there is a “forward” mortgage to be retired with a maximum not to exceed the lesser of the appraised value or FHA’s insurance limit for your county. For example, if you are 63 years old, own a home in Brevard County, Florida valued at $200,000 that has no “forward” mortgage, you could receive the following based on the Reverse Mortgage Calculators provided on the AARP and National Reverse Mortgage Lenders Association’s websites:
A single lump sum advance of: $94,601.
A credit line of: $94,601 that grows each year by 7.12%.
A monthly advance of: $570 for as long as you live in your home.
Any combination of all three.
So, Hec’m, go to http://www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm to find a list of HUD/FHA approved reverse mortgage lenders in your area and start diggin’ for gold!
Sources:
AARP’s “Homemade Money: A Consumer’s Guide to Reverse Mortgages”
Department of Housing and Urban Development/Federal Housing Authority
DML Mortgage Co.
National Reverse Mortgage Lenders Association
American Reverse Mortgage Corporation
Seniors First Mortgage Corp.