The Reverse Mortgage (A.K.A. HECM or Home Equity Conversion Mortgage) is a loan option that was designed by the Federal Housing Administration (FHA) to help those 62 and older use the equity in their home to beef up their retirement income. It works in reverse of the forward mortgage, with home equity diminishing over time and the borrower receiving payments.
At West-Cal Mortgage, we offer low interest rates and closing costs for Reverse Mortgages. With todays low rates, the best time to act is now!
If you live in communities of Sonoma County such as Sebastopol, Santa Rosa, Healdsburg, Petaluma, Cloverdale, Rohnert Park, Cotati, Russian River, Guerneville, Forestville, Bodega Bay, Occidental, Monte Rio then contact local Sebastopol mortgage broker, Dan Eichhorn at West-Cal Mortgage to turn the equity of your home into cash that you can use right away!
What is the Purpose of a Reverse Mortgage?
A HECM loan or Reverse Mortgage was created by the FHA as a tool for seniors to have a more secure retirement. It allows those 62 and older to enhance their income by turning home equity into cash and eliminating mortgage payments. It can also help provide seniors with a secured home for life.
Reverse Mortgage loans are guaranteed by the FHA. It is guaranteed that the borrower will receive all promised payments and that the borrower and their estate will never owe more than the value of the home.
How Can a Reverse Mortgage Benefit Me?
Reverse Mortgages Help With Living Expenses
If a senior needs cash for medical expenses, home renovations, or day-to-day living expenses, then funds received from a reverse mortgage can be extremely helpful and worthwhile. If a large amount of money is needed at once, then the Reverse Mortgage loan can be taken in lump sum form.
Reverse Mortgages Eliminate Existing Mortgage Payments
If you still owe money on your traditional mortgage, the reverse mortgage principle is used to pay off the rest of the mortgage and eradicate monthly mortgage payments. It uses the equity in your home as collateral to refinance into a reverse mortgage at a better rate.
Who Benefits Most from a Reverse Mortgage?
- Those desiring a home equity line of credit (HELOC) and cannot qualify
- Those wanting to supplement retirement income
- Those seeking to strategically organize their retirement through a financial tool such as a reverse mortgage
- Those with unforeseen expenses, such as from income loss after the death of a spouse or medical expenses
- Those remaining in the home for a lengthy time horizon
Factors That Increase Borrowing Power
- Age – older applicants can generally borrow more at better rates
- Home Value and Equity – those with higher home values and/or higher equity have more borrowing power
- Interest Rates – when interest rates are lower, you can borrow more
Reverse Mortgage Eligibility
The reverse mortgage is only applicable to borrowers age 62 and older and who have considerable home equity. It is more accessible than other loan products like home equity line of credit (HELOC), forward mortgage, or home equity loan.
The amount of the loan depends on the borrowers age, interest rate and home value. Seniors with homes that have increase in value can acquire better loan amounts and terms when refinancing a new reverse mortgage. For the first 12 months after closing, the borrower is eligible to obtain 60% of the principle limit and an added 10%. The principle limit amount decided at closing cannot surpass the total of mandatory obligations plus 10%.
Reverse Mortgage Requirements
- One borrower on title must be age 62 or older
- HUD (Housing and Urban Development) eligibility criteria must be met by borrowers
- Loan proceeds must be used to pay off any current mortgage
- House must be a single family, multi-family (up to 4), or approved condominium or manufactured home
- Should own your home fully or have little left to pay on your current mortgage
- Home satisfied FHA minimum property standards
- Condition of home is good before taking out the loan
- Property taxes and insurance must continue to be paid by the borrower
- Home must be the borrowers primary residence
How does a Reverse Mortgage Affect Inheritance?
With a reverse mortgage, the borrower or their heirs are guaranteed never to owe more than the property value or the loan balance. Any surplus money after selling the home and paying off the loan belongs to the heirs.
When an heir inherits a home with a reverse mortgage, they inherit a home with a lien. The heirs/estate can decide whether to keep the home and pay off the loan or to sell the home and pay off the loan. The remainder of the homes equity after sale is transferred to the borrower’s estate. If the home sells for less than the balance owed, it is not mandatory for the estate to pay more than the home’s value.
Reverse Mortgage Financing Options
Any of the Following Options can be combined to receive your reverse mortgage loan payments:
- Line of Credit
- Funds may be withdrawn at your discretion up to a maximum amount
- Grows over time – money lift unused accumulates value from interest
- Lump Sum
- Lump cash sum at the closing of the loan
- Monthly annuity payments for the lifetime of the loan
- Monthly annuity payments for a designated time period
The borrower is free to switch between these options if they pay a small fee.
Reverse Mortgage Pros and Cons
- Home title stays in your name
- Access money at will without monthly loan payments
- Borrower can pay off the loan at any point
- Never have to pay another mortgage payment
- Increases cash flow
- If home value falls, lender may not cut off your line of credit
- Various options for receiving your money
- Keep remaining equity after sale and never owe more than your home value or principle
- Closing costs and ongoing fees are financed within the loan (less “out-of-pocket” expenses)
- Income from loan proceeds is generally not considered taxable
- Home inherited by heirs comes with a lien
- Higher closing costs than a traditional mortgage
- Over time, loan balance (debt) increases because of accumulating interest
- Must continuously maintain according to FHA specifications and retain HUD requirements
- May effect eligibility for needs-based government programs like Medicaid or SSI
Finding the Right Lender
The most important part of getting a reverse mortgage is finding a responsible loan officer that is dedicated to your best interest, willing to offer reduced origination fees. This is exactly what we offer here at West-Cal Mortgage!
A good loan officer should support the needs of their client. A loan officer should not convince you to borrow more than you need so they can pull in more commission. Responsible loan officers make sure a senior can pay future expenses like property taxes, maintenance, and insurance and does not hide these expenses from you. A loan officer should not suggest taking a spouse off the title to a home, such as when a spouse is too young to qualify or the older one qualifies for much more. Upon death of the older spouse, the younger one may be left without a home.
To use a reverse mortgage properly, you must know who you are getting the loan from. You should be aware of their qualifications, location, and how to contact them after the loan closing. Another benefit of West-Cal Mortgage, especially for Sonoma County residents, is that Dan Eichhorn is a well-established, experienced, local mortgage broker with an office located in Sebastopol California, easily contacted by phone or email.
Address: 101 Morris St. Suite 211, Sebastopol, CA. 95472
Phone: Work – (707) 824-8081
Cell – (707) 490-9413