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Pros And Cons Of Reverse Mortgages
They are a steady stream of income that lasts for years. You can convert the equity in your home into a pile of cash without having to move out.
The money is tax free. Rather than income earned, a reverse mortgage is considered a loan so the IRS cant get its sticky fingers on it. And a reverse mortgage will not affect your Social Security or Medicare payments.
As for the cons, failing to keep up with the monthly fees has cost a lot of people their homes. Of course, if they didnt pay those bills theyd also face foreclosure with a traditional loan.
The difference is that with traditional loan, the debt decreases every month. Since there are no mortgage payments with a reverse mortgage, the loan balance increases every month.
Between the interest and other costs, the debt may eventually exceed the homes market value. If you want your children to inherit the house, they could be stuck with a steep bill.
The good news is you or your estate will never have to pay a lender more than the market value of the house. The bad news is Uncle Sam got tired of paying the difference.
Since 2009, reverse-mortgage losses have cost the Federal Housing Administration reserve fund $12 billion. Thats the same fund that insures low-income newcomers to the housing market.
The average reverse mortgage borrower drew 64% of their equity under the old rules. That will drop to 58%, according to the Wall Street Journal.
How Does A Reverse Mortgage Work When You Die
Its important to have a plan to deal with your reverse mortgage loan after you die. Family members also need to understand their options for keeping the house, as well as their payment responsibilities. Repaying the loan can get complicated, depending on how much equity you have in your house and whether you want the house to stay in your family after your death.
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Refinancing Reverse Mortgages For Heirs In California
North Coast Financial is a direct hard money lender able to provide funding to refinance reverse mortgages for heirs in California. A reverse mortgage refinance is a financing tool often used by heirs who wish to maintain ownership of a reverse-mortgaged home they have inherited. Refinancing a reverse mortgage through a conventional lender such as a bank or credit union is generally not possible as conventional lenders will not provide a loan to an individual whose name is not on title of the property.
North Coast Financial is one of the top hard money lenders in California with over 40 years of experience. Offering quick approval and funding, very competitive rates and professional service, North Coast Financial has proven to be a reliable direct hard money lender able to fund various types of hard money loans. Contact North Coast Financial now to get a hard money reverse mortgage refinance loan funded fast.
North Coast Financial is able to refinance reverse mortgages for heirs in San Diego, Los Angeles, Orange County, San Francisco Bay Area, Ventura, Sacramento, Riverside, Temecula and other cities and counties throughout the state the California.
What To Do If Youre Facing Reverse Mortgage Problems
From not fully understanding how a reverse mortgage works to facing unexpected changes or needs, borrowers often have to figure out how to get out of a reverse mortgage. Consider these steps should you run into reverse mortgage problems.
Seek help from a HUD-approved counselor
Borrowers with concerns about their reverse mortgage loan should speak with their reverse mortgage counselor, Irwin said. In addition to discussing the loan repayment process, the counselor can also run a benefits checkup to determine if the borrower is eligible for federal or state resources, such as SNAP or other government programs.
Review your long-term plans
Know what goals you want to prioritize, such as whether you wish to remain in the home long term or pass the property to your heirs.
Consider the costs
Keep in mind, any course of action you take will come at a cost. Refinancing your existing loan with either a conventional mortgage or a new reverse mortgage will entail closing costs.
Communicate with your lender
At the first sign of trouble, reach out to your lender to discuss the reverse mortgage problems you are facing.
Make partial payments
Even if you cant afford to repay your reverse mortgage in a lump sum, you might consider making partial prepayments to reduce the amount owed later on. Most reverse mortgages allow partial prepayments without charging a penalty, but be sure to talk to your loan servicer about your prepayment options and confirm how those payments will be applied.
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How Refinancing Can Protect A Non
Couples often removed a younger spouse from title prior to 2015 to close a reverse mortgage when one of the two spouses were not yet 62 years of age. The loans borrowers closed with younger borrowers prior to 2015 must be repaid when the older spouse passes or is no longer living in the property.
By refinancing these loans with todays HUD guidelines, younger spouses would not have to refinance the loan or be forced to move when the older spouse passes if they do not have the means to refinance.
Even if that younger spouse is still under 62 years old, the couple can refinance the loan if they qualify under the current HUD program parameters using the eligible non-borrowing spouse designation.
As an eligible non-borrowing spouse, the younger spouse may remain on title and can also stay in the home for life under the terms of the existing loan without having to make a mortgage payment even if the older spouse should predecease the younger spouse.
Borrowers looking to refinance with the sole motivation of a lower interest rate may be disappointed but for some borrowers with high exiting rates, mortgage insurance renewals and servicing fees, there may be a good opportunity at this time.
In addition to possibly receiving more cash, you may be able to get a lower rate, possibly a lower margin and maybe even eliminate a fee such as a servicing fee which lowers the interest that you accrue over time.
Benefits Of Refinancing A Reverse Mortgage
For some borrowers, the most compelling reasons to refinance a reverse mortgage are lowering interest rates or switching from a variable rate to a fixed rate. If you borrowed when rates were high and interest rates have gone down significantly, this might also make refinancing worth it. Carefully consider how much you or your heirs will save over time versus the closing costs and fees associated with the new reverse mortgage.
Another reason to refinance a reverse mortgage is if your home has appreciated in value, making you eligible for a higher loan limit. Since a reverse mortgage is not taxed, this could be a way to take advantage of increased equity.
Other borrowers might consider reverse mortgage refinancing if they need to add a spouse to the loan to ensure he or she can remain in the home if the borrower passes away or moves into a nursing home.
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Refinance Your Reverse Mortgage
Another option is refinancing out of a reverse mortgage into one with better terms. For example, if interest rates have decreased significantly since taking out your reverse mortgage, or your homes value has increased, and you would qualify for a larger loan amount, it might benefit you to refinance your reverse mortgage. With this path, a new reverse mortgage loan replaces the current one.
How Soon Can You Refinance A Mortgage
Considering the rising mortgage refinance rates, you might be like many homeowners who are asking: How soon can you refinance a mortgage?
Attractive mortgage rates helped more homeowners refinance their mortgage in 2020 than at any other time. And many newer homeowners are now looking toward a time when lower rates will allow them to refinance as well.
How soon you can refinance your mortgage depends on the type of loan you have.
The most popular mortgage refinance programs are:
- Conventional loan
- VA loan
- USDA loan
Today, well will look at each type of the above loans and how soon you can refinance a mortgage.
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Reverse Mortgages Your Spouse And Your Heirs
Both spouses have to consent to the loan, but both dont have to be borrowers, and this arrangement can create problems. If two spouses live together in a home but only one spouse is named as the borrower on the reverse mortgage, then the other spouse is at risk of losing the home if the borrowing spouse dies first. A reverse mortgage must be repaid when the borrower dies, and its usually repaid by selling the house. If the surviving spouse wants to keep the home, then the mortgage loan will have to be repaid through other means, possibly through an expensive refinance.
Only one spouse might be a borrower if only one spouse holds title to the house, perhaps because it was inherited or because its ownership predates the marriage. Ideally, both spouses will hold title and both will be borrowers on the reverse mortgage so that when the first spouse dies, the other spouse continues to have access to the reverse mortgage proceeds and can continue living in the house until death. The non-borrowing spouse could even lose the home if the borrowing spouse had to move into an assisted living facility or nursing home for a year or longer.
What If You Dont Qualify
If you dont qualify for any of these loans, what options remain for using home equity to fund your retirement? You could sell and downsize, or you could sell your home to your children or grandchildren to keep it in the family, perhaps even becoming their renter if you want to continue living in the home.
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Refinancing A Reverse Mortgage How To Do It
There are two methods of refinancing your reverse mortgage. You can either refinance to a new reverse mortgage or a traditional mortgage. The difference might only come in with the specific qualifications for each. Below is a guide on how you can go about the process:
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To Move From A Reverse Mortgage To A Different Type Of Loan
Some homeowners may decide that a reverse mortgage is no longer necessary for them. In such cases, you could refinance back into a traditional home loan. However, that would mean that you would again be responsible for making monthly payments. A big reason people may decide to take this step is so their children will be able to inherit the home without having to worry about paying back the reverse mortgage. Going this route should involve having a conversation with any family members who would be impacted.
Be Wary Of Sales Pitches For A Reverse Mortgage
Is a reverse mortgage right for you? Only you can decide what works for your situation. A counselor from an independent government-approved housing counseling agency can help. But a salesperson isnt likely to be the best guide for what works for you. This is especially true if he or she acts like a reverse mortgage is a solution for all your problems, pushes you to take out a loan, or has ideas on how you can spend the money from a reverse mortgage.
For example, some sellers may try to sell you things like home improvement services but then suggest a reverse mortgage as an easy way to pay for them. If you decide you need home improvements, and you think a reverse mortgage is the way to pay for them, shop around before deciding on a particular seller. Your home improvement costs include not only the price of the work being done but also the costs and fees youll pay to get the reverse mortgage.
Some reverse mortgage salespeople might suggest ways to invest the money from your reverse mortgage even pressuring you to buy other financial products, like an annuity or long-term care insurance. Resist that pressure. If you buy those kinds of financial products, you could lose the money you get from your reverse mortgage. You dont have to buy any financial products, services or investment to get a reverse mortgage. In fact, in some situations, its illegal to require you to buy other products to get a reverse mortgage.
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When Should You Refinance A Reverse Mortgage
A reverse mortgage refinance may make sense if you can:
- Access more home equity because your home has appreciated in value
- Lower your interest rate by a significant amount
- Add a non-borrowing spouse to the new loan
Those who are equity rich and cash poor should consider a reverse mortgage refinance. If you are a senior who doesnt have the money you need to live a comfortable lifestyle, you can use the equity to increase your standard of living, Washington said.
Reverse mortgages and refis are ideal for seniors who need money to survive and have no other source of income except the equity in their home.
However, because of the reverse mortgage requirements that you must continue paying your property taxes and homeowners insurance, and you must keep up with the maintenance and repairs HECM lenders must complete a financial assessment before they can approve borrowers for reverse mortgages.
Your lender will verify that the new loan makes financial sense for you . Theyll also make sure that you can afford to continue paying your property taxes, homeowners insurance, and the costs of home repairs.
Taking out a reverse mortgage refinance if the numbers dont work is not in your interest or your lenders.
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If You Would Lose Too Much Equity
Whenever you add more costs onto a home loan, you lose equity. In the case of a reverse mortgage refinance, it would mean decreasing the proceeds that surviving relatives may get after selling and paying off the reverse mortgage.
If youve already taken a significant amount of money from a reverse mortgage, it could be harder to meet the equity requirements for a refinance.
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How Refinancing A Reverse Mortgage Works
Refinancing a reverse mortgage is similar to refinancing a conventional loan. However, a refinanced reverse mortgage will still have the specific requirements universal to home equity conversion mortgages and many proprietary reverse mortgages.
- The prospective borrower must typically be 62 years of age or older.
- They must maintain the property they are refinancing as their primary residence.
- There also must be enough equity for the borrower to qualify for a reverse mortgage.
- The borrower also must have adequate income to maintain the property, including paying taxes, insurance, and any HOA or association dues.
- Different lenders may have additional requirements for which reverse mortgages are eligible for refinance.
In addition to those requirements, the borrower must sign an anti-churning disclosure at closing. This disclosure is intended to prevent churn or the predatory tactic of repeatedly refinancing mortgages to accrue fees and closing costs.