Dec 302016
 

When it comes to a reverse mortgage, there are terms that are unique to just the reverse mortgage / HECM program.  The intent of this glossary is not to provide a full mortgage term glossary of terms, but mainly just terms one will encounter as they explore what a reverse mortgage is and what it can do for them.

Reverse Mortgage Glossary

Benefit – The amount of Principal Limit / Funds available to be dispersed to the borrower.

reverse mortgage glossary

reverse mortgage glossary

Counseling – 3rd party counseling is a requirement to do a HECM/Reverse Loan. The counselor’s job is educate the older homeowner in regard to RM’s, to inform them of the alternative options available to their given situation, and to assist in determining which particular HECM product fits their needs.

Durable Power of Attorney – A legal document that enables an individual to designate another person to act on their behalf even in the event the individual becomes disabled or incapacitated.

Expected Interest Rate – Used to calculate how much money the borrower will receive and based on the 10 year LIBOR SWAP rate plus an acceptable margin.

FHA – Federal Housing Administration (a division of HUD) insures lenders against loss in the event that a borrower defaults on their loan.

FHA Case Number – This establishes the FHA connection to the property and this number stays with the property until the loan is satisfied.

Floor – The lowest an interest rate can go.

Forward Mortgage – A traditional mortgage where the borrower makes monthly payments and pays the balance down over time.

Fully Indexed Rate – The note rate that is based on the margin and the index added together

Growth Rate – The rate at which the unused line of credit grows.  On a HECM, it grows at the note rate plus 1.25%.

HECM –  Acronym for Home Equity Conversion Mortgage which is just the FHA version of the Reverse Mortgage.

HECM 60 Fixed – The FHA reverse mortgage that has a note rate that is fixed for the life of the loan.  MIP can vary dependent on the utilization.  If 60% or below, MIP is .5% of appraised value or MCA (whichever is lower).  If above 60% utilization, MIP is 2.5% of Appraisal or MCA.

HECM 60 LIBOR – The FHA reverse mortgage that has a note rate that is adjustable monthly.

HECM 60 Annual – The FHA reverse mortgage that has a note rate that is adjustable yearly.

HUD – Department of Housing & Urban Development.  Works as a lending facilitator and helps borrowers by offering counseling services to potential mortgage clients.

Initial Interest Rate – The actual interest rate on the loan, changes monthly (or yearly on the annual), and is based on the 1 month LIBOR or 1 year LIBOR plus an acceptable margin.

Index – Part of the fully indexed rate.  This is usually a published rate such as the 1 month LIBOR or 1 year LIBOR used on the HECM LIBOR and HECM Annual (respectively).

Incompetent – The inability of a senior to make rational legal, medical or healthcare decisions as determined by a licensed professional or physician.

Irrevocable Trust – A trust that cannot be changed or canceled once it is set up without  the consent of the beneficiary.

Leased Property – The ownership of the land where a structure resides rests with another party not the owner of the structure.

LIBOR – Most common index used on adjustable rate mortgages.  Stands for London InterBank Offered Rate, and is the daily referenced rate based on the rate banks offer to lend unsecured funds to other banks in the London wholesale money market.

Life Estate – The ownership of land for the duration of a person’s life and a legal arrangement where the “life tenant” during his life or her life retains use, possession, and maintenance of the property.

Life Expectancy Set-Aside:  This is money that is set aside from the funds available to cover the cost of the property taxes and/or homeowner’s insurance for the expected life of the loan.

Line Of Credit (LOC)- A reverse mortgage benefit option that allows the borrower to make draws against the equity of their home.  The benefit on this option also has the opportunity to grow larger over time. On the HECM, the unused portion of the LOC grows at the note rate plus 1.25%.

Lump Sum – A reverse Mortgage benefit option in which the borrower receives a large sum of cash upon the closing of the loan.

Manufactured HomeHousing units built in factories and transported to the sites for use.

Max Claim Amount – MCA = the amount of home value used in calculating the Principal Loan Limit on the FHA HECM. It is the lesser of the appraised value or the lending limit for HECM’s (limit is $625,500).

Mobile Home  – Housing units built in factories rather than on site produced prior to the 1976 HUD code enactment.

Modular Homes – Homes built in factories in multiple modules or sections then delivered to their intended site of use and assembled. Modular Homes are considered Single Family Homes.

Mortgage – The document that ties the home as collateral for the note or loan.

Mortgage Insurance Premium – A monthly payment paid by the borrower for mortgage insurance.  On a HECM this is added to the Principal Loan Balance.

Non Recourse Loan- A mortgage in which the borrower is protected by the fact that the home is the only asset that can be used to repay the note.

Note – The terms and conditions of the loan per the terms of the note for the loan.

Note Rate – The actual rate of the loan per the terms of the note for the loan.

Origination Fee – The charge for originating the loan.

Pre-Payment – Payment of the mortgage loan before the scheduled due date.

Principal Loan Balance  – The amount used at settlement to pay liens and settlement charges.  When the loan is official, this will accrue interest and grow as servicing fees, any monthly draws, any monthly advances, interest, and monthly mortgage insurance accrue.

Principal Loan Limit – The gross amount a borrower will qualify for with a reverse mortgage.

Principal Limit Lock –  Locks in the clients benefit and is secured from when the client signs application and extends to 120 days past the opening of the FHA case number. The client will receive the best of market from the day they sign or the day they close.

Planned Unit Development (PUD) – A project or subdivision that includes common property that is owned and maintained by a homeowners association for the benefit and use of the individual PUD unit owners.

Rate Cap – The maximum amount an adjustable rate mortgage can adjust up or down.  On a HECM there are no periodic caps on the monthly LIBOR (lifetime cap 10% over start rate) and the annual LIBOR adjusts 1 time per year (lifetime cap 5% over start rate and 2% per year).

Recording Fee – The fee to record all of the mortgage documents with the county where the property is located.

Repair Set Aside – A portion of the principal loan limit withheld until necessary repairs have been completed as a condition of closing the loan.  Once the repairs have been completed and approved, this portion of the Principal Loan Limit will become available to the borrower.

Rescission Period – Federal law provides a 3 day “right of rescission”. This is the option for the client to cancel the contract for the loan without penalty within 3 business days (including Saturdays).

Residual Income – As it pertains to reverse mortgage, residual income refers to the amount of income left over monthly after subtracting the following from your total gross monthly income.  The formula is Gross income – monthly amount for housing expenses (taxes, homeowner insurance, HOA, etc.) – monthly liability payments on credit report (car loans, credit card loans etc.) = your residual income.

Reverse Mortgage – A mortgage in which the borrower makes no payments and the interest is added onto the balance of the mortgage.  The balance will grow until the borrower fully satisfies the loan.

Revocable TrustA trust in which any of its provisions can be changed, or the trust itself can be cancelled at any time by the grantor.

For your free Reverse Mortgage California brochure, please email slvReverseMortgage@gmail.com   OR shawnv@ReverseMortgageCalifornia.biz

Shawn Lawrence Vaillancourt

NMLS License # 387151 in CA, CO, VA, MD, WA, OR

I also have a staff of reverse mortgage specialists in virtually every other state in America.

For more in depth info on all Reverse Mortgage subjects, check out

www.reversemortgagecalifornia.biz 

Reverse Mortgage Advisor

Dec 222016
 

When it comes to Reverse Mortgages in general, they tend to be a grossly overlooked financial tool by many homeowners and financial planners alike.  Yet, surprisingly, many homeowners and financial planners don’t truly and intimately know how these financial products actually work.  Often times they currently overlook them due to outdated information and / or misconceptions that just aren’t true.

However, in recent years Reverse Mortgages (AKA, HECM’s which stands for Home Equity Conversion Mortgages) have been gaining momentum among the financial planning community.  This is mainly because many have made a concerted effort to really understand this financial tool. Frankly, this is a breath of fresh air as I firmly believe a financial planner should have a firm grasp on the ins and outs of ALL financial tools.

While we’ll briefly discuss what a reverse mortgage is, the intent of this article is not to educate you on all the minute details of the reverse mortgage.  Rather, it’s to discuss how a reverse mortgage

can be used to purchase a home.

What a Reverse Mortgage is in the simplest of terms:

Using A Reverse Mortgage to Purchase A Home

Using A Reverse Mortgage to Purchase A Home

A HECM is a home loan like any other that enables a homeowner to access a portion of their equity and convert it into currency they can actually use.  Rather than making a payment every month to pay down the balance, it does not require a monthly payment for as long as the homeowner lives or for as long as they live in their home.  In essence, the payment stream is reversed.

Wait, didn’t I mention converting equity to a usable currency?  Yes I did and the following will explain how it translates into using a HECM for purchase.

For your free Reverse Mortgage California brochure, please email slvReverseMortgage@gmail.com   OR shawnv@ReverseMortgageCalifornia.biz

It’s important to know “how much you get” when you do a Reverse Mortgage. 

You have to be at least age 62 to get  this type of financing in the good old USA.  The amount you get moves on a sliding scale that increases up until the point where a homeowner is 90.  You don’t get any additional funds for being aged 91, 92, or 93 etc.  The range (As of August 2014 through the present (November, 2016) is 52.4 percent to 75 percent.  If a homeowner or home purchaser is 62 or older, but has a spouse that is younger than age 62, then the percentage you get is less because it would be based on the younger spouse’s age (allows both spouses to live in the home for the rest of both of their lives).

The two big differences between a HECM for purchase loan and a traditional loan:

  1. With a reverse mortgage, the homeowner does not need to make a monthly mortgage payment for as long as they live or for as long as they live in the home (although you can if you want to or need to for any other strategic financial reasons). This is what makes this type of loan so desirable for many.  It gives the homeowner a tremendous amount of control financially and eliminates the burden of a housing payment.
  2. There are many traditional loans that are geared towards low or no down payment. If that’s what you need, this is not the loan for you.

Here’s roughly how it might work for a 62 year old that’s looking to downsize.  Let’s say that below is there current scenario:

– Home that’s being sold value = $175,000.

– Amount owed = $35,000

– Cash realized after sale of home (not including any real estate agent commissions) = $140,000.

 

In this example, we’ll say they are buying a house for $100,000.  Often times, retired or older homeowners will pay cash for the home they are downsizing to.  It can be a good idea because you can reap the benefit of selling the bigger home for more than what the new home will cost and then pay cash for the new home (eliminating a mortgage payment) and still have money left over.

So, in this case the homeowner would take $100,000 from the proceeds of the sale of their previous home and be left with $40,000 in the bank on top of what they may already have (or not have).

For your free Reverse Mortgage California brochure, please email slvReverseMortgage@gmail.com   OR shawnv@ReverseMortgageCalifornia.biz

Here’s how it would look if the same couple used a reverse mortgage to buy the home:

ASSUMPTIONS: Youngest buyer/borrower is age 62.

Remember, at age 62 you get about 52.4% of the appraised value (or purchase prices).  So, if this couple used a reverse mortgage to purchase their $100,000 home they’d get a reverse mortgage for $52,400.  In this case, they’d need to put the difference of $47,600 as a down payment.  Hence, of the $140,000 of the sale proceeds they’d have $92,400 left over to keep in the bank (minus a small amount for closing costs).

For some, it’s a no brainer.  You can buy a home and NOT have a mortgage payment with both scenarios, but if you pay cash, you only have $40,000 left over.  If you use a Reverse Mortgage (HECM) for purchasing your home, you’ll have around $90,000 left over.  Not bad!

Not all financial products are for everyone, but the reverse mortgage purchase loan can be a very strategic, smart way to purchase your next home (or, if you’re a real estate professional, a great way to help get your clients into a new home).

For more info on a Reverse Mortgage purchase loan or and traditional HECM / Reverse Mortgage contact:

Shawn Vaillancourt (714) 271-8524

slvReverseMortgage@gmail.com

NMLS#387151

Licensed in the following states; CA, CO, MD, OR, VA, WA

I also have a staff of reverse mortgage specialists in virtually every other state in America.

For more in depth info on all Reverse Mortgage subjects, check out

www.reversemortgagecalifornia.biz 

Reverse Mortgage Loan Advisor