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If you are 62 or older, Looking for a Home Equity Line of Credit or Home Equity Loan? consider this...

If you are 62 or older, Looking for a Home Equity Line of Credit or Home Equity Loan? consider this...

A Home Equity Conversion Mortgage (HECM) — also known as a Reverse Mortgage — offers a line of credit option with many of the benefits of a traditional Home Equity Line of Credit (HELOC), plus some significant advantages.

Converts home equity into funds you can access as needed
Federal Housing Administration (FHA) insured
Flexible payment feature — Giving you freedom and flexibility in how you manage your monthly expenses
No required monthly payment on principal and interest required. As with any home-secured loan, you remain responsible for property taxes, homeowners insurance, and property maintenance in order for the loan to remain in good standing.
You can pay down your principal and interest if and when you choose, no pre-payment penalties apply.
The unused line of credit grows over time, giving you more available funds. This means that the less you take out up front, the more you’ll be able to borrow later.
Lender cannot cancel or reduce your line of credit, as long as you meet your loan obligations.
No pre-defined loan maturity date: Loan remains in force and no principal and interest payments are required until borrowers move, pass away or sell the home, as long as they meet their loan obligations.
You can opt to convert the line of credit into a monthly stream of funds at any time in the future, if you so choose

HECM Reverse Mortgage versus Traditional Home Equity Line of Credit.

The advantages of a Reverse Mortgage Line of Credit are clear.

Converts home equity into funds you can easily access as needed.
Federal Housing Administration (FHA) insured loan
No required monthly payment on principal and interest.
(As with any home-secured loan, you remain responsible for property taxes, homeowners insurance, and property maintenance in order for the loan to remain in good standing.)
Flexible payment feature: You can choose to pay down your loan at any time if you so choose, or defer repayment. The benefit of a HECM Reverse Mortgage Line of Credit is that you are not mandated to make principal and interest payments each month. This gives you freedom and flexibility in terms of how you manage your monthly expenses.
The unused line of credit grows over time, giving you more available funds.
This means that the less you take out up front, the more you’ll be able to borrow later.
Lender cannot cancel or reduce your line of credit, as long as you meet your loan obligations.
You can never owe more than the home is worth when the loan is repaid — known as the non-recourse feature.
No pre-defined loan maturity date: Loan remains in force and no principal and interest payments are required until borrowers move, pass away or sell the home, as long as they meet their loan obligations.
You can choose to convert the line of credit into a monthly stream of funds at any time in the future.

The Loan Process: A Reverse Mortgage Roadmap

A Home Equity Conversion Mortgage (HECM) — commonly known as a reverse mortgage — is a powerful financial tool that allows you to turn some of the equity in your home into funds you can use as you choose.
The process to obtain a reverse mortgage is simple; but it’s helpful to know what you can expect. Your licensed Reverse Mortgage Funding LLC (RMF) loan specialist will guide you throughout the entire process, and will answer any question you may have along the way.
You can use this as a checklist as you complete each step.

STEP ONE: Preparation

Education. Your RMF loan specialist will have all the information you’ll need to help you decide if a reverse mortgage is the right solution for you.
Counseling. You’ll meet with a third-party reverse mortgage counselor who’s approved by the U.S. Department of Housing and Urban Development (HUD), to make sure you understand all aspects of the loan.

STEP TWO: On the Road


Application. After counseling, if you’ve decided to move forward you’ll choose a lender and submit your application to them. The application includes some personal information, and a financial assessment will be conducted to make sure you’ll be able to afford ongoing expenses like property taxes and insurance and home maintenance.
Counseling. Your home will be appraised, by an independent appraiser, to determine the value. Then the appraisal and loan package will be sent to an RMF underwriter for review and approval. The underwriter will make sure all the information in the package is correct and compliant with all laws and regulations.

STEP THREE: Almost There


Signing Closing Documents. After your loan application is approved, you will sign your closing documents with a title officer or attorney (depending on your state’s requirements).

STEP FOUR: Arrival!


Funding and Disbursement. Three days after closing, the loan funds are disbursed and you can access them according to the payment plan you selected. Your loan funds will first be used to pay off any existing mortgage on your home, a new lien (the reverse mortgage) is placed on the home, and you can use the remaining funds from your reverse mortgage however you choose.

How the Reverse Mortgage Line of Credit GROWS...

The unused portion of a Reverse Mortgage Line of Credit grows at a rate of 1.25 percent plus the current interest rate of the loan — independent of home value — as the chart below* shows. So as you age, you can gain access to significantly more funds. The earlier you establish the Reverse Mortgage Line of Credit and the less you take out up front, the more funds you’ll have in the future.

* The information being shown is for illustrative purposes only. Scenario is a 62-year-old couple, with a home valued at $450,000 and no mortgage, securing a reverse mortgage line of credit (LOC). LOC will grow at 4.50% above the 1-year LIBOR (margin = 3.25% + ongoing Mortgage Insurance Premium of 1.25% = 4.50%). The initial LOC is $212,751; left unused, in 10 years, when they are 72 years old, LOC will have grown to $368,949 in available funds. In 20 years, at age 82, assuming no withdrawals the amount available will be $639,824. The estimates shown are based on a CA property and Reverse Mortgage Funding LLC’s HECM Annual ARM as of 12/08/15. The initial APR is 4.268%. The loan has a variable rate. The rate is tied to the 1-year LIBOR plus a margin of 3.25%. There is a 5% lifetime interest cap. This means that the maximum rate that could be imposed is 9.268%. In this example, closing costs include an origination fee of $0, third-party closings costs of $2,437.45, and an up-front FHA Mortgage Insurance Premium of $2,250 depending on the appraised value of the property securing the loan. The borrower receives a credit at closing of $3,688.45. Interest rates and funds available may change daily without notice.

Pros and Cons

A reverse mortgage could be a key component to your retirement planning, providing funds now and for the future — but it’s not the right choice for everyone. We want you to understand the advantages and disadvantages to help you determine if a reverse mortgage is right for you. This page is a good place to start.

Pros of a Reverse Mortgage


It’s a loan option that can help make it easier for homeowners and homebuyers age 62 and older to live a more comfortable retirement.
You continue to live in your home and retain title to it.
You can choose to take your funds as a lump sum; line of credit that you can tap as needed; a steady stream of monthly advances for a set period of time, or as long as you live in the home; or a combination of these options.
The funds from your reverse mortgage loan can be used to pay off the existing mortgage on your home. While there will still be a lien on your home for the outstanding amount of the reverse mortgage, you are not required to make monthly principal and interest payments on the reverse mortgage, so you will be freed from the monthly mortgage payment expense. (As with any home-secured loan, you will continue to be responsible for paying for property-related taxes, insurance and upkeep.)
No monthly mortgage payments are required for as long as you live in the home and continue to meet your obligations to pay your property taxes and homeowners insurance and maintain the property.
Closing costs and ongoing fees, such as the Federal Housing Administration (FHA) Mortgage Insurance Premium (MIP), can be financed with the reverse mortgage loan — so out-of-pocket expenses can be minimal.
Loan proceeds are generally not considered taxable income. (Not tax advice; consult a tax professional.)
Generally, a reverse mortgage loan will not affect Social Security or Medicare benefits. However, you may wish to consult a financial professional to determine the potential financial implications of obtaining a reverse mortgage loan.
A reverse mortgage loan is a non-recourse loan. This means that neither your nor your heirs are personally liable for any amount of the mortgage that exceeds the value of your home.
If your home increases in value in the future, you may consider refinancing your reverse mortgage to access even more loan proceeds.
After the loan is repaid, any remaining equity belongs to you or your heirs.

Cons of a Reverse Mortgage


The loan balance increases over time as interest on the loan and fees accumulate.
As home equity is used, fewer assets are available to leave to your heirs. You can still leave the home to your heirs, but they will have to repay the loan balance. Usually, the loan is paid off by selling the home. However, this can be done using other funds or by refinancing through a traditional mortgage.
Fees may be higher than with a traditional mortgage. (Ask us about our lower-cost options.)
Eligibility for needs-based government programs, such as Medicaid or Supplemental Security Income (SSI), may be affected. Consult a benefits specialist.
The loan becomes due and must be repaid when a “maturity event” occurs, such as the last surviving borrower (or non-borrowing spouse meeting certain conditions) passes away, the home is no longer the borrower’s principal residence, or the borrower vacates the property for more than 12 months. The loan will also become due if the homeowner fails to pay their property taxes or homeowners insurance, or fails to maintain the property.

Ready to Learn More?

Take the next 2 minutes and let’s get started on the path to determine if you are eligible for a reverse mortgage — let’s begin. Call us @ 1-866-595-2859