Reverse Mortgages in
Are you 62 or older, own a home and living in Hollywood? You may stand to benefit from a Home Equity Conversion Mortgage (HECM), commonly called a reverse mortgage. Even if you have heard the term thrown around a lot, you might not understand how a reverse mortgage works. A reverse mortgage is similar to a traditional mortgage, but it works differently in a few important ways. Let’s discuss how these reverse mortgage services work.
Reverse Mortgage Basics
A reverse mortgage is a loan that turns home equity into cash. Applicants for this kind of loan must meet certain requirements, including being over the minimum age of 62 and using their home as their primary residence. When you get a reverse mortgage, you can choose a lump sum, a monthly payments, a line of credit, or a combination of the three to receive your payment. Another option is to use the proceeds of your reverse mortgage to purchase a new home. If you live in a high-value home (generally above $1.2 million) a jumbo reverse mortgage can allow you to borrow above the FHA’s upper lending limit of $679,650.
Reverse Mortgage Rates
Reverse mortgage rates play a large role in how the loan works. For one thing, the rate you get on your reverse mortgage will, in part, determine how much money you can borrow. The lower the interest rate you secure, the more money the lender will approve for the loan.
Contrary to a traditional mortgage, a reverse mortgage does not require monthly payments on interest or principal. That doesn’t mean that the loan doesn’t accrue interest. Interest is assessed for the life of a reverse mortgage, but payment on that interest isn’t due until the end of the loan. So, a lower rate is still better for you financially, as you will owe less money when the mortgage ends.
Reverse Mortgage Fees
Like a traditional mortgage, a reverse mortgage comes with fees attached, most of which are due upfront. These fees fall into three main categories: the origination fee, mortgage insurance premiums (MIPs), and third-party fees (traditional closing costs).
The origination fee goes to your lender and is based on the value of your home. This fee is usually between $2,500 and $6,000, the fee cap.
Mortgage insurance premiums make sure that the lender can recoup some of its losses in the event of a default, or if the home’s value at the end of the mortgage is less than the loan amount. There are two kinds of MIPs associated with a reverse mortgage. The upfront MIP is 2% of the home’s value (up to a max of $679,650), which is due at closing. Throughout the life of the loan, there is also an annual MIP of .5% of the loan balance.
The third-party fees are generally the same kinds of fees associated with a traditional mortgage. These fees include title, inspection, appraisal, and other services associated with the reverse mortgage.