A Brief History

The original idea for reverse mortgages actually goes back to the 1960s. For many years these loans were not closely regulated. But in 1989 the U.S. Congress passed legislation designed to protect senior borrowers by making the reverse mortgage a completely transparent transaction.

They created the Home Equity Conversion Mortgage (HECM) which has become the most common reverse mortgage plan (about 90% of all reverse mortgages granted). It is an FHA insured (Federal Housing Administration) and HUD regulated (Housing and Urban Development) product. Now there are other reverse mortgage programs for specific needs and purposes as well. All reverse mortgages require a brief counseling session with an independent, qualified counselor. This insures that the borrowers fully understand what they are doing and that it is in their best interest to proceed. It can be done on the phone or in person.

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The Basic Concept

The reverse mortgage is designed to assist older adults (age 62+) in accessing some of the value built into their home over many years of hard work. It is intended to help make their retirement years financially secure and their lives more enjoyable and enriching.

Before reverse mortgages existed, there were only two ways to access cash from one’s home without selling it. Refinance the home or take out a line of credit. Both of these require monthly repayments to the lender and require income and credit history approval. A reverse mortgage is now a third way. It has no monthly repayment to the lender as long as the borrower/s remains living in the home; and income, credit history, and health are not factors in granting the loan.

There are several different types of reverse mortgage which are outlined below. They each have different features and options which can be used for each borrower’s special needs and desires. The money received from a reverse mortgage can be used for anything the borrower wishes: extra monthly income, paying off debts, medical expenses and prescriptions, home repairs and fix-up, long term care, insurance, travel, estate planning issues, helping the grandchildren, just about anything! Any existing mortgage debt must be paid off at loan closing using reverse mortgage proceeds.

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Three Kinds of Reverse Mortgages

1. Home Equity Conversion Mortgage (HECM)
• Accounts for about 90% of all reverse mortgages funded.
• FHA insured and HUD regulated.
• Loan amount determined by borrower’s age, home value, and interest rates. HUD sets a lending limit according to home location.
• Most HECM loans are adjustable rate mortgages (ARMs) that adjust monthly, annually, or every six months based on an index and margin. A fixed rate reverse mortgage now also exits which stays constant for the life of the loan.
• Funds from a HECM can be taken as cash at closing, monthly income for life or a fixed term, or left in a credit line for use when desired. Combinations of these methods are OK. Potential funds left in the creditline grow over time, thus increasing one’s borrowing power.
• Closing costs include FHA mortgage insurance, an origination fee, and normal costs such as title insurance, appraisal, escrow, documents, and other fees normally associated with any loan product. All closing costs can be financed into the loan, so borrowers potentially have no out of pocket expenses.

2. Fannie Mae Home Keeper

• Similar to a HECM reverse mortgage, but has features a HECM does not. No mortgage insurance required, and this product can be used for a home purchase!
(It is anticipated that HECM products may be used for home purchase at some
time in the future).
• Also a government sponsored program (Federal National Mortgage Association).
Based on an index and margin with interest rates typically higher than the HECM
reverse mortgage.
• No creditline growth rate with this product.
• Closing costs can be financed into the loan.

3. Jumbo Products or “ Proprietary” Reverse Mortgages
• Specially designed for borrowers with higher valued homes ($600-700,000+) and greater amounts of available equity. Lending amount based on full home value with no other limit. Therefore allows borrower to access more cash than with other products.
• Also based on an index and margin in a semi-annual adjustable rate loan.
• No mortgage insurance required and closing options that offer reduced costs or no closing costs in some situations.
• Equity Key investment program which allows seniors to get 12%- 15% of their home value cash without having to take a loan up to 70% loan to value."
• Fixed creditline growth rate, but no monthly income option.
• Closing costs (if any) can be financed into the loan.

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Frequently Asked Questions

What is a reverse mortgage? A special loan allowing homeowners (age 62+) to convert part of the value of their home into tax-free cash while always retaining home ownership. Homeowner receives money from the lender which does not have to be repaid as long as the borrower/s remains in the home. Most reverse mortgages are FHA insured and regulated by HUD.

No monthly repayments! Proceeds are tax-free! Does not affect Social Security or Medicare!

How do I qualify? Must be at least age 62, own your home, and have no or moderate mortgage debt. (There are NO income, health, or credit requirements!)

What are the costs to do the loan? FHA mortgage insurance fee, origination fee, and normal closing costs as with any other loan product. Other Reverse Mortgage products are available with lower or no fees.

What kinds of properties qualify? Single family homes, condos, townhouses, PUDs, and 2-4 unit residences as long as owner resides in one unit. Mobile homes and manufactured homes must meet HUD guidelines.

How much money can I get? Amount depends on your age, value of your home, where you live, and interest rates. There are several different kinds of RMs. Each has different lending limits and options.

How do I get the money? You can take the money as cash up front, regular monthly income for as long as you remain in your home or for a fixed term, or leave it in a creditline to use whenever desired. Combinations of these are also OK!

How and when is the reverse mortgage repaid? It is repaid when the last borrower is no longer permanently living in the home...by selling the home, paying off the reverse mortgage, and remaining equity going to the borrowers or their heirs. Or the loan balance can be paid from existing funds on hand. The home can also be refinanced to satisfy the debt and then be kept in the family. Also, full prepayment is allowed at any time without penalty.

What if I owe more on the reverse mortgage than my home is worth? You can NEVER owe more than the fair market value of your home…even if real estate prices should drop dramatically!! This is a special safety feature built into all reverse mortgages to protect senior borrowers.

I’ve heard that the lender gets my house in the end? Absolutely not!! That is the biggest misconception about reverse mortgages. You always remain on title. A reverse mortgage is just a lien that must be repaid like any other.

How can reverse mortgages help real estate professionals and their clients?
• Assist seniors in helping grandchildren get their first home.
• Allow seniors to purchase a smaller home for retirement.
• Assist seniors with regular mortgages pay them off and have no more monthly payments.
• Provide seniors with cash to purchase a vacation home or an investment property.
• Give seniors access to cash to improve the quality of their lives, purchase long term care insurance, eliminate debts, repair or fix up their home for retirement years, take a dream vacation, pay for medical bills and prescriptions, and much more.

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Links and Other Information

How much can I quality for? Check out the AARP calculator here! Also, visit the AARP website for more information on reverse mortgages. www.aarp.org. Or let us know if you would like AARP’s booklet on reverse mortgages…we’ll be glad to send you one!

Can you explain all the details to me and my family? Sure! Feel free to fill out the brief form here. We will contact you and be glad to visit with you in your home at your convenience.

I’m a mortgage broker, but don’t offer reverse mortgages. Can you help me serve my clients who may be interested? Absolutely. Ask us about the HECM Advisor Program. We can partner with you to offer the HECM products to your clients. Please give us your contact information and we will be in touch with you immediately. A great way to increase your current business!

My company assists seniors with special services or financial products. Can you help us inform our customers and staff about reverse mortgages? We would be glad to hold a free corporate seminar at your offices any time you wish!

Thank you for visiting our website. We appreciate your interest and look forward to helping you in any way we can. Please contact us at any time with questions you may have. We are UniTrust Mortgage, Inc. and we want to change seniors’ lives for the better!

Gaetan (Gary) Chevalier 760-815-9271
David Silverman 858-695-8559