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Reverse Mortgages

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What is a “Retirement Mortgage?”

A “retirement mortgage” is a HECM: Home Equity Conversion Mortgage, AKA, Reverse Mortgage. I like to refer to it as a “retirement mortgage” as you must be a minimum of 55 years old to apply for ANY of the Reverse Mortgage loan programs. The HECM Reverse mortgage requires a minimum age of 62. The are other proprietary reverse mortgage loans available in some states, with a minimum age of 55.

What is the Maximum National HECM Property Value Limit?

The 2023 National Maximum HECM property value limit is $1089,300.00. This new higher property value limit, will assist more borrowers with higher home values and more equity, obtain a viable Reverse Mortgage.

Is a Reverse Mortgage a home loan?

Yes! A Reverse Mortgage is just that, a home loan. The loan is a title lien against the property, the same as a 30 year fixed forward mortgage. The only difference is in the terms of how the loan is paid back. On a Reverse Mortgage, the loan may be paid monthly, if the borrowers choose to, or in lump sums throughout the term or at the end or termination of the loan. There is NO MONTHLY PAYMENT required with a Reverse Mortgage loan.

Is a Reverse Mortgage loan considered a “Recourse Loan”?

No! The Reverse Mortgage is a NON-RECOURSE debt. There is no personal liability if the loan balance is not satisfied at the end or termination of the loan. The servicing lender of the mortgage may ONLY recover up to the full market value of the home at the time the loan has come to term or been terminated.

Example: The amount owed to the lender at the time the loan is terminated is $500,000.00. The market value of the home is $450,000.00. The maximum amount the lender can collect is the $450,000.00. The remaining $50,000.00 is non recoverable. Neither the borrowers, the heirs or their trust are liable for the outstanding balance.

What is the Reverse Mortgage “Line of Credit Growth Feature?”

You can establish a Line of Credit within the Reverse Mortgage loan. This can be set up any number of ways. On a purchase transaction, you would “over fund” the loan, so funds remain available for a withdraw. If the loan were set up as a refinance, you would leave an untouched available balance. Either scenario works. This balance of available cash, GROWS each month at the same interest rate assessed to the loan, plus mortgage insurance. Overtime, this Line of Credit growth, can amount to a substantial amount of liquidity. This available cash can be used for any number of things; such as a regular withdraw to augment income, to pay for Long Term Care, unexpected bills, home maintenance or lifestyle.

Are the withdrawals from the Reverse Mortgage Line of Credit considered Taxable Income?

Withdraws taken from a HECM/Reverse Mortgage are not subject to income taxation.

That being said, it is always a good idea to consult a tax professional for their advice.

Does the Line of Credit accrue mortgage interest to be paid back?

The Line of Credit balance does NOT accrue mortgage interest on the portion of funds that have not been used (withdrawn). Borrowers who do not have an immediate need for the funds, do not have to pay mortgage interest on those funds; as long as they remain “un-borrowed” and available for withdraw.

Can a Reverse Mortgage Line of Credit be “frozen or cancelled”?

Unlike a forward mortgage Line of Credit, referred to as a HELOC...(Home Equity Line of Credit,) a HECM/Reverse Mortgage Line of Credit can NEVER be frozen or cancelled by the lender. How many people do you know who have had their HELOC’s frozen or cancelled during tough economic times? This is a risk with a forward HELOC loan. Since there is a federal mortgage insurance assessed to the HECM mortgage and therefore the Line of Credit, it is protected from ever being frozen of cancelled. The money will always be available to them if they withdraw it before the death of last borrower or before the loan has been terminated.

How do higher mortgage interest rates affect the growth of the Reverse Mortgage Line of Credit?

This can be seen as a hedge against inflation. The HECM Reverse Mortgage Line of Credit is an adjustable-rate mortgage that adjusts each month; If the interest rate rises, so does the growth rate of the Line of Credit.

Is there a Fixed Rate HECM/Reverse Mortgage loan product?

Yes, there is. The fixed-rate loan program has only one way to withdraw funds. That is through the initial disbursement when the loan funds. It must all be taken in a lump sum. There is NOT a HECM Reverse Mortgage Line of Credit option with a fixed interest rate.

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Karen Keyser

Sr. Mortgage Advisor / Broker Associate

Tel: (208) 908-0190
DRE # 1348153  NMLS # 238676

Capital Loan Associates

Tel: (858) 376-0404

NMLS # 344836
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