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Frequently Asked Questions about Reverse Mortgages

What is a Reverse Mortgage?

It is a special type of loan that enables all senior homeowners, age 62 and older; to convert a large part of the equity in their primary home---into tax free income---yes, tax free!

How do I qualify for a Reverse Mortgage?

It’s simple. All borrowers just need to be 62 years of age, or older, and use their home as their primary residence.

Why wouldn’t I just get a home equity loan?

Home Equity loans require monthly repayments and a credit qualification. On a reverse mortgage, there are no monthly or annual repayments----and there are no credit qualifications.

What if I owe money on a first or second mortgage; can I still get a Reverse Mortgage?

Yes, the funds you receive are first used to pay off the existing mortgage.

After getting a Reverse Mortgage, wouldn’t the lender own my home?

No. You retain the title to the property and the lender is not ever added to the deed.

What kinds of homes are eligible for a Reverse Mortgage?

Single-family, two-to-four unit dwellings, town homes, detached homes, condominiums, planned unit developments, and some manufactured homes.

What kinds of fees are involved obtaining a Reverse Mortgage?

Rest assured that the fees that do occur can be paid by the Reverse Mortgage itself, making them no burden to the borrowers. The costs can be added to the principal and paid only when the loan itself is paid. These standard fees are: application fee, origination fee, closing costs, insurance, and a servicing fee---all spelled out in a Good Faith Estimate.

So, no closing costs are required to be paid at settlement?

That’s right---they can all be “rolled in” to the total amount of your loan, if you choose. If you do have availability to other funds to pay those costs, you may do so.

When will I have to pay the principal and interest costs associated with this loan?

You will never be required to make any principal or interest payments until one of the following occurs: (a) the last surviving borrower passes away or sells the home; (b) all borrowers permanently move out of the home; (c) the last surviving borrower fails to live in the home for 12 consecutive months; (d) you fail to pay property taxes or insurance; or (e) the property deteriorates beyond normal wear and tear.

How are the interest rates computed for a Reverse Mortgage?

Your interest rate will depend on the specific product you select, and this will all be explained in your free session with your independent counselor.

How is the amount of cash for which I am eligible determined?

This is based on a very specific formula including: 1) your age; 2) type of Reverse Mortgage; 3) current interest rates;

4) location of the home; 5) appraised value; and FHA's lending limits in your area.

What if the value of my home decreases before the loan is paid off?

When the loan is repaid, if the value of the home is less than the outstanding balance of the loan, you nor your heirs will pay back a single dollar of the difference. Conversely, if the home is sold for more than the outstanding balance---you or your heirs will receive the difference!

So, it is not possible for my repayment amount to be greater than the value of my home?

You or your heirs can never owe more than what your home is worth at the time the loan is repaid.

Reverse Mortgages are referred to as a “non recourse” loan. What does this mean to me?

This means that the lender can derive repayment only from the proceeds of the sale of the property. They cannot seek repayment from any of your other assets---or from your estate.

What are the tax consequences for a Reverse Mortgage loan?

Reverse Mortgage loan proceeds are not taxable, no matter how you receive them. If you decide to pay off the loan during your lifetime, the interest incurred is deductible, by you! If it is paid by your heirs---it is deductible, by them!

What about my Social Security benefits and Medicare?

Regular Social Security or Medicare benefits are not affected by a Reverse Mortgage. You should contact your local benefits program administrator regarding your own situation.

Are there any limits on how I use the money I receive from a Reverse Mortgage?

You can use it for anything at all (a cruise, home repairs, long term care insurance, life Insurance, and etc.)

I have heard there is a mandatory counseling session---what does this mean to me?

This is a feature designed by the Federal Government for your protection. A counselor, from an independent government-approved agency, will explain each of your Reverse Mortgage alternatives and the total costs associated with them. They will also inform you of any other government programs for which you may qualify.

Do you mean they can actually calculate the total costs of the loan—before I obtain it?

Yes, they will print something called the Total Annual Loan Cost (TALC) sheet which combines all of the costs of a Reverse Mortgage into a single annual average rate. You will also receive an amortization chart, just as you would with any mortgage.

Do I need to take the money all at once?

No, depending on the type of Reverse Mortgage you select, the cash you get from a Reverse Mortgage can be paid to you in several ways, and---if your situation changes---you can always restructure it!

1) All at once, in a single lump sum of cash;

2) A regular monthly cash advance;

3) A "credit-line" account; or

4) Any combination of these alternatives.

Let’s say I choose the line of credit option. Do I have to use up my entire line of credit?

No, you do not have to use it up---and the unused portion grows over time, at a guaranteed rate----continually increasing the amount of cash available to you---at no cost to you or your heirs!

Can you give an example of how the line of credit grows?

Let’s say you have a line of credit for $150,000 and you utilize only $25,000 of it. This leaves a balance of $125,000. If you do not use the line of credit until one year later, and your “growth rate” is 6%, your available credit line would be 6% higher. You would then have $132,500 available versus $125,000! You will be informed of your growth rate before the loan is written. See the document entitled “Scenarios” for more examples of guaranteed credit line growth.

How many types of Reverse Mortgages are there?

There are three basic types of Reverse Mortgages:

Federally-insured Reverse Mortgages. Known as Home Equity Conversion Mortgages (HECM), they are insured by

The U.S. Department of Housing and Urban Development.

Government-sponsored Reverse Mortgages. Home Keeper® is Fannie Mae’s alternative to the HECM, and works

like a HECM loan in many ways.

Proprietary Reverse Mortgages. These are privately backed loans which are generally used for higher property

values than the HECM or the Home Keeper®.

How will I decide?

Your counselor will help you and your loan officer will guide you. Your unique situation will dictate which loan will best meet your financial goals. Something called the Reverse Mortgage Analyzer software will compare and contrast the costs and the features of each loan and select the right loan. You and your loan officer can then do “what if scenarios” with the results of that selection. You will also receive an ammortization chart, just as you would with any loan---so that you can look out 5, 10, 15 years or more and see the effect that loan will have on your estate.

So, if I take a Reverse Mortgage loan, I could still have an estate that I can leave to my heirs?

When the outstanding loan balance is paid, any remaining equity belongs to you or your heirs! You will have the ability to structure your loan so that not only is there an estate to leave to your heirs----the fact that you are remaining in your home, can actually preserve and possibly enhance the estate for your heirs!

Are the heirs required to sell the property to repay the Reverse Mortgage loan?

No. Repayment may be accomplished with a traditional mortgage loan---or any other assets.

Won't my heirs object to my "spending their inheritance?"

By working with an experienced Reverse Mortgage loan officer, there is every possibility that you will not only NOT be spending their inheritance---you will be preserving and protecting the estate for your heirs! In other words, if the proceeds from these loans are properly managed, these loans could actually “ease” the burden on the heirs; and potentially offload and preserve wealth for the heirs. Please go to the document entitled “Scenarios” for some examples.

How could a Reverse Mortgage be utilized to offload and preserve wealth for my heirs?

This is a burgeoning concept among financial planners. A wealthy couple withdraws the equity from their home, reducing the value of their estate. They make a gift of money to grandchildren through 529 college savings plans----or---as outright annual gifts. They fund an irrevocable insurance trust that buys more life insurance. The trust keeps the insurance out of their estate. When the couple dies; their children receive the life insurance proceeds tax free. They then use these proceeds to pay off the Reverse Mortgage and keep the house, or they sell the home to pay off the Reverse Mortgage.

Then a Reverse Mortgage loan is not just for the poor? It could be utilized by all of our seniors?

A Reverse Mortgage, properly written, can enhance the lives of all seniors--and their heirs!

I have heard that the older I am, the more money I will receive---should I wait to get this loan?

Maybe, but because you have the guaranteed growth in the line of credit option, you will see that it might be more beneficial in the long run to take out a Reverse Mortgage now.

What if my home needs repairs? Could that prevent me from getting a Reverse Mortgage?

As part of the process of getting a Reverse Mortgage a property appraisal is performed by a FHA-licensed appraiser. The appraiser gives a listing of any repairs that would be required to bring the home up to FHA property standards. A certain amount of money is then set aside until those repairs can be performed, usually after the Reverse Mortgage is in place.

Are there any prepayment penalties for early repayment?

Absolutely not.

It all sounds good, but how safe are they---really?

Today, they have become a very safe income option. Again, the oversight of the Federal Government provides many guarantees: 1) that the payments will be made to you; and 2) that you can stay in your home, for as long as you like. Additionally, many more enhancements and incentives are currently in the works for Reverse Mortgages.

It sounds so simple; but where do I begin the process of obtaining a Reverse Mortgage?

The first step is to sit down with one of our Reverse Mortgage Specialists so that we can gain a clear understanding of your financial goals. We will be very straightforward with you as to whether or not we feel that a Reverse Mortgage can actually help you meet those goals. It is important to note that, as one of the premier mortgage brokerage firms in the region, HomeFirst Mortgage Corp. has a rich and vast array of financial products---so there is absolutely no reason to take on a Reverse Mortgage loan if it is not 110% right for you!

If you decide that you would like to continue to explore these types of loans, we can assist you in setting up your free government counseling session. This session will provide you with additional information on any other programs that might meet your needs. If you decide to move forward with a Reverse Mortgage, we will assist you in completing an application---then the rest of it is all coordinated by us---until time for you to go to settlement---in your own home!

One last question—what if I go though the entire process and change my mind?

No problem! You have three (3) days, after settlement, to rescind your decision!

That's it?

That's it! You have spent a lifetime paying for your home. Now it is time for your home to pay for the time of your life!

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