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Explanation of the FHA HECM

Explanation of the FHA HECM

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HECM Explained HECM Explained Presentation Transcript

  • The HUD/FHA Home Equity Conversion Mortgage (H.E.C.M.)
  • What is a H.E.C.M. Reverse Mortgage? A H.E.C.M. Reverse Mortgage is a government regulated loan designed for seniors 62 and older that allows seniors to tap into the equity that has built up in their homes without the worry of making monthly payments. They keep title to their home just as with any mortgage.
  • What is a H.E.C.M. Reverse Mortgage?
    • A Reverse Mortgage is:
      • Knowing that they do not have to make any mortgage payments.
      • Knowing that they can stay in their home for the rest of their lives.
      • Knowing that there is no debt being passed on to their heirs.
      • Knowing they keep their independence when it comes to their finances.
  • What is a H.E.C.M. Reverse Mortgage?
    • It’s Financial Security
    • It’s Peace of Mind
  • How Does a Reverse Mortgage work?
    • Based on the interest rate, the age of the youngest borrower and the value of their home, we determine how much they qualify for.
    • That amount will be used to pay-off any existing mortgage and the excess is theirs to do with what they want.
  • How is the Loan Repaid?
    • The loan is repaid from the sale or refinance of the home when the last surviving homeowner no longer lives in it.
    • As long as the homeowner lives in the home, keeps real estate taxes and insurance paid, there are no payments required.
    • In the event of death of one of the homeowners, the loan remains in place for the survivor (for joint applications).
  • How Do They Qualify?
    • All individuals on title must be 62 years old or older
    • There are NO health requirements
    • The are NO income requirements
    • There are NO credit requirements
    • Any existing mortgage loans must be paid off or paid off by the Reverse Mortgage (Elder Homes liens may be subordinated)
    • Mandatory counseling session by HUD approved Housing Counselor
    • Most condominiums & PUDs are OK
    • Home must be a 1-4 family primary residence
    • Manufactured homes are accepted if on a HUD approved foundation
  • Tap Into the Equity
    • They keep title to their home and it passes to their heirs, just as before
    • No restrictions on how they use the funds
    • Proceeds from a Reverse Mortgage are income-tax free
    • Proceeds DO NOT affect the income received from Social Security* or change benefits like Medicare
      • *SSI and other means-tested programs may be affected if the money drawn is not spent in the month it is received. Consult a tax advisor.
  • Flexible Payment Options
    • There are payment options are available
      • Lump Sum Payment
      • Tenure option
      • Term option
      • Line of credit
      • Combination of above
    • They can change the plan at any time during the life of the loan, provided funds remain to support the change
  • Benefits of an FHA Insured H.E.C.M.
    • It insures that promised future advances will be made.
    • It insures that NO PAYMENT is required as long as the borrower lives in the home, no matter how long they live there and no matter what happens to the value of the home.
    • It insures that the debt will never be greater than the value of the home.
    • It insures that payments will be made even if the borrower lives longer or the house has little appreciation.
  • Up-Front & Financed Costs
    • Typical Loan costs
      • Appraisal, title insurance, origination fee, FHA mortgage Insurance, recording fees, as well as other typical and customary closing costs.
    • They are provided an itemized estimate of closing costs *
    * Most closing costs can be funded through the loan
  • Interest Rates
    • Variable Rate
      • Initial interest rate based on the 1-yr CMT (1-yr. Constant Maturity Treasury) plus a margin.
      • Based on the 1-Month LIBOR Index
    • Fixed Rate
  • Borrower’s Responsibility
    • Keep property real estate taxes current
    • Maintain homeowner’s insurance
    • Maintain property in good condition
  • Repaying The Loan
    • No repayment necessary until none of the borrowers live in the home
      • they sell the home, move out*, or all borrowers pass away
    • Loan is repaid with reasonable interest; heirs still inherit the remaining equity
    • No penalty for early re-payment
    • No debt is passed on to their heirs
    • *12 months or more out of the home
  • Remember This Important Fact
    • They do NOT sign over the title to their home!
  • Example One
    • Homeowners age 71
    • Home value of $150,000
    • Has a mortgage balance of $40,000 that they pay at $650 per month
      • Net available to them $51,119 (after paying off the mortgage)
      • They take $10,000 for Home Improvements
      • They set up a Credit Line of $41,119
      • OR they could draw $248 as income
  • Example One
    • They now have an additional $898 each month to spend as they see fit:
    • $650 mortgage payment they do NOT make
    • $248 from their Reverse Mortgage
    • $898 Total
  • Example Two
    • Youngest Homeowner age 75
    • Home value of $125,000
    • No Mortgages
      • Net available to them is $79,430
      • They decided to take $15,000 Lump Sum
      • They also took $200 as monthly income
      • The remainder is available to them in a Credit Line of $33,200
  • Example Two Continued
    • Let’s assume the interest rate increases 2% at year 3 and the home appreciates at only 5%.
    • In 5 years time:
    • They’ve drawn $2,400 per year from the loan; or $12,000 total
    • The balance has grown to $44,829
    • The retained equity has grown from $102,614 to $114,706 – a $12,092 increase!
    • After 10 years the retained equity has grown to $127,326
  • Example Three
    • Homeowner age 67
    • Home value of $90,000
      • Net Available is $48,276
      • Or $279 per month
  • Let’s Add Up The Benefits
    • They maintain the benefits of home ownership
    • They maintain those benefits as long as they remain in their home
    • They satisfy their financial needs
    • They maintain financial independence
    • They keep the title to their home
  • The Process
    • A critical step in the Reverse Mortgage process includes counseling by an HUD approved independent housing counselor whose only objective is to be sure they completely understand the terms and costs involved.
  • The First Step
    • Set an appointment with a Reverse Mortgage Advisor to meet with the senior and their trusted advisors to discuss how a Reverse Mortgage can help them.
    • Most appointments are done in the home
    • For more information, please call me at
    • (804) 673-5626
    • Dale E. Rich
    • Reverse Mortgage Advisor
    • Sterling Mortgage Corporation
    • 1508 Willow Lawn Drive, Suite 210
    • Richmond, VA 23230
    • Equal Housing Opportunity Lender
    • Licensed by the Virginia State Corporation Commission; License MLB-157
    You’ve Paid for Your Home… Now Manage Your Equity Just As Any Other Asset.
  • Important Notice
    • Please remember that loan terms and conditions are subject to change at any time without notice. While the terms described herein are believed to be true when this presentation was created, no warranty is made either expressed or implied. Be sure to read the appropriate disclosures before making a decision.
    • Seniors are encouraged to consult their trusted advisors such as sons or daughters, attorney, financial and tax advisors for advice before acting.