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.
Asset Protection.
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.
