CONSUMER SAFEGUARDS - ASSURANCE
Your most carefree years should be your retirement years It is possible to achieve this with a reverse mortgage. To help senior borrowers with a reverse mortgage, reverse mortgage safeguards were built into the loan by HUD, a part of the executive branch of the United States federal government. In my opinion, these essential safeguards make the reverse mortgage one of the safest loan products in the lending industry.
Capped Interest Rates.
The interest rate is the same no matter which lender a senior chooses. On the HECM, interest rates are adjusted either monthly or annually and published weekly by the Federal Reserve. Both the monthly and annually adjusted rates have lifetime caps.
Limitation on Fees. Origination fees are set by HUD regulations and are financed as part of the Reverse Mortgage. This means a senior incurs very little out-of-pocket expense to obtain a reverse mortgage.
No Maturity Date.
A reverse mortgage cannot become due during the homeowner’s lifetime. This is because the term of the loan is set to 150 years. The fact that there are no required payments and there is a lifetime right to occupy the home means the HECM provides great protection against unanticipated future circumstances.
No Prepayment Penalty.
Although the loan is not due and payable until the senior permanently moves out of the home whether by selling the home, passing away, or leaving the premises longer than 12 months, the reverse mortgage can be paid off at any point prior with no additional fees or costs.
The HECM is a “non-recourse” loan. This means that the amount due can never exceed what the home is worth. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but never more than the value of the house. If there is remaining value, it belongs to the homeowner or their estate. The lender cannot look to any other asset for repayment of the debt thereby protecting borrower's assets.
FHA mortgage insurance. Mortgage insurance ensures you will never owe more than your home is worth; this is because of a feature called non-recourse which was previously mentioned. Lenders can only recoup shortages or be made whole by putting in a claim to the FHA through mortgage insurance which is a feature of the reverse mortgage.
In the reverse mortgage documents you sign at closing called the Note, the Mortgage, and the Loan Agreement, there is a section called NO DEFICIENCY JUDGMENT. This means that if there is a deficiency in the payback of the debt to the lender (such as homes under water), the lender cannot recoup any of their loss from you personally but will instead use the FHA mortgage insurance to put in a claim and recoup their loss. FHA mortgage insurance protects you but also protects the lender.
In your closing documents, it states should you default on the loan for any reason, you are NOT personally responsible for the debt — meaning nothing other than the home (which was the collateral) can be attached. Bank accounts, retirement funds, and other assets cannot be used to satisfy the loan. The house stands for the debt.
No Penalty for Canceling the Loan.
After the loan closes, a borrower has up to three days to cancel the transaction for any reason whatsoever. This is called the “right of rescission” period and is an important safeguard. Your loan will not fund until after three days have passed (which includes Saturdays) in which you have the option of changing your mind and cancelling your loan.
NOTE TO NEW YORK BORROWERS:
You are required to obtain your own attorney who is required to attend your closing and walk you through the process. You will be responsible for paying your attorney his fee which can be financed along with the other closing fees and paid to the attorney out of the reverse mortgage proceeds.
There are considerations you will make in order to ascertain if a reverse mortgage is right for you. You may have questions and your family may also be asking how the reverse mortgage will work for you. Is it truly the right vehicle for you? The link provided below discusses options and alternatives to reverse mortgages. And remember, Advisors Mortgage is here to help and answer any and all of your questions and concerns.
Questions? Call Advisors Mortgage! Advisors Mortgage: 888-843-9797 or 631-804-9044
Independent Counseling. One of the most important safeguards to the HECM program is independent counseling by a HUD-approved counselor. HECM counseling is required by HUD before the reverse mortgage application can be processed. The borrower must meet with an independent HUD-approved counselor and obtain HECM counseling. HUD oversees a network of counselors whose job is to review the transaction, answer any questions the borrower may have about reverse mortgages, and suggest alternative options. After the counseling has been completed, borrowers receive a HECM counseling certificate which is passed onto the loan officer, the borrower retaining a copy.
As mentioned in the "Is It Right for Me" page on this website, it used to be that if a borrower had a spouse who was under age 62 and that borrower was not on the reverse mortgage. once the borrower passed away, the spouse would eventually have to sell the home if they could not pay off the reverse mortgage. Death is considered a "maturity event" in the reverse mortgage world, and this was a tough situation.
Thankfully, all this has changed. Through the Mortgage Stability Act, there has been a change in reverse mortgage parameters. If there is a non-borrowing spouse, the reverse mortgage will not become due when the borrower passes away, and their spouses who are under age 62 will be able to remain in the home. However, the HECM line of credit would no longer be accessible and all monthly proceeds would end. Speak to your reverse mortgage professional about these issues to see if this is still a viable option for you and your spouse. You may refer to the HUD Mortgagee Letter # 2014-07 - April 25, 2014 regarding non-borrowing spouse parameters.
NOTE: Prior to getting a reverse mortgage, consult an attorney to obtain any necessary documents you have such as will, life estate, power of attorney, marriage certificate as these documents will need to be reviewed by the lender especially if there is a non-borrowing spouse.
In the mortgage world as well as reverse mortgages, a maturity event triggers repayment of a loan. Click below to learn about maturity events on a reverse mortgage.
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