Monthly payments – This is the most common of Reverse Mortgages. As a tenure plan, you receive the same monthly check for as long as you live in the home. Because the HECM loan is guaranteed by FHA, the payments can never be reduced even if the equity in the property is eliminated.
Term Payment - Receive a check for a certain period, i.e. 10 years, 15 years (only available on the HECM).
Line of Credit – Similar to a credit card, this is available to you at your leisure. The best part is you don’t have to pay it back either.
Lump Sum or a Combination - With either the FHA or Fannie Mae loans, the payment plan may be changed during the term of the loan. A small one-time fee will be charged to the loan balance at the time of each change.
Interest Rates
You have two options very similar to your regular mortgages. You can choose a Fixed Rate or an Adjustable Rate program. Without getting too technical, you would generally receive more in an Adjustable Rate program than the Fixed Rate program. We recommend you use the Reverse Mortgage Calculator (CALC) to see the differences.
Costs of the Reverse Mortgage
Borrowers costs are set by FHA and nobody is allowed to make any changes to the fees. The fees associated with the reverse mortgage are fully financed and there are typically no out of pocket expenses. These costs are approximately 6-12% of the loan amount. The appraisal fee would be paid up front as part of the processing of the loan and may be paid back at closing if you wish.
Repaying the loan
If the borrower(s) sells or moves out of the home for more than one year due to an illness, the loan must be repaid. The amount to be repaid includes the closing costs, cash advanced to the borrower over the length of the loan and the accrued interest. If you wish to relocate to another property, as long as the new property has equity, you can repay the old Reverse Mortgage and have another Reverse Mortgage on the new property.
Obtaining Consumer Education
Before obtaining a HECM or a Home Keeper Mortgage, you are required to attend a consumer counseling education session. The purpose of counseling is to ensure that you understand the loan agreement and that you are aware of other options that might be available to you.
PREMASS recommends your heirs, accountants, attorneys or any other professional you wish, also attend the counseling session. This way you all should be able to make an informed decision.
You should receive a Certificate proving you received HECM counseling, which is valid for 180 days. It must be signed by both the counselor and homeowner to be valid. When more than one homeowner is applying for the loan, as long as at least one homeowner’s signature is on the certificate is within the 180-day expiration period, the lender may consider the counseling certificate as being valid for all borrowers on the loan. Any borrower who received the counseling more than 180 days previously and do not believe a second session would be useful, may waive the expiration date in writing.
There may be a “customary and reasonable” fee for reverse mortgage counseling.