How Are The Fees And Interest Rates For A Reverse Mortgage Calculated
CHIP Reverse Mortgage interest rates are available in both fixed and variable terms. The variable rate will fluctuate as it is directly influenced by the Bank of Canadaâs prime rate. If the Bank of Canadaâs prime rate increases, for example, your Reverse Mortgage interest rate will also increase. Our fixed rates are set for a pre-determined timeframe and are available for a six-month, 1-year, 3-year or 5-year period.
The closing fee charged by HomeEquity Bank for most clients is $1795 although individual circumstances do vary. The closing fee is deducted from the proceeds of the mortgage instead of being paid out of pocket. The closing fee covers legal, administrative costs, discharging any prior mortgage and registration of the CHIP Reverse Mortgage.
Learn More about Chipâs Fixed and Variable Reverse Mortgage Interest Rates.
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.
When A Reverse Mortgage Might Not Be For You
- You rely on certain government need-based benefits, such as Medicaid or Supplemental Security Income , which may be disrupted if you take out a reverse mortgage.
- You want someone to inherit your home free and clear of any debt when you die.
- You think you may want to move.
- Your health might require you to move into an assisted living or nursing facility for more than 12 months.
- Your spouse will not be a co-borrower. A non-borrowing spouse will not receive any further reverse mortgage proceeds after a borrowing spouse dies, and in some circumstances, they may not be able to keep living in the home.
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Repayment Of A Reverse Mortgage
The borrower is not required to pay back a reverse mortgage loan until the home is sold, vacated or the last surviving borrower dies.
However, if the home at some point is no longer your primary residence, you will be required to pay back the loan.
In addition, you may also be required to pay back the loan sooner if:
- You fail to pay the property taxes or homeowners insurance
- You dont keep the home in good condition
Are There Any Income Or Credit Score Requirements
Yes. Since monthly payments are not required, proof of your income is used to ensure you can continue to pay your basic living expenses, plus home insurance, property taxes and any association dues. A credit check is used to confirm if you have any federal tax liens or other items that may affect qualification. Credit scores are not a consideration.
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Would You Benefit From A Reverse Mortgage
A reverse mortgage might sound a lot like a home equity loan or a home equity line of credit . Indeed, similar to one of these loans, a reverse mortgage can provide a lump sum or a line of credit that you can access as needed, based on how much of your home youve paid off and your homes market value. But unlike a home equity loan or a HELOC, you dont need to have an income or good credit to qualify, and you wont make any loan payments while you occupy the home as your primary residence.
A reverse mortgage is the only way to access home equity without selling the home for seniors who either dont want the responsibility of making a monthly loan payment or cant qualify for a home equity loan or refinance because of limited cash flow or poor credit.
How Much Does A Reverse Mortgage Cost
The closing costs for a reverse mortgage arent cheap, but the majority of HECM mortgages allow homeowners to roll the costs into the loan so you dont have to shell out the money upfront. Doing this, however, reduces the amount of funds available to you through the loan.
Heres a breakdown of HECM fees and charges, according to HUD:
- Mortgage insurance premiums There is a 2 percent initial MIP at closing, as well as an annual MIP equal to 0.5 percent of the outstanding loan balance. The MIP can be financed into the loan.
- Origination fee To process your HECM loan, lenders charge the greater of $2,500 or 2 percent of the first $200,000 of your homes value, plus 1 percent of the amount over $200,000. The fee is capped at $6,000.
- Servicing fees Lenders can charge a monthly fee to maintain and monitor your HECM for the life of the loan. Monthly servicing fees cannot exceed $30 for loans with a fixed rate or an annually adjusting rate, or $35 if the rate adjusts monthly.
- Third-party fees Third parties may charge their own fees, as well, such as for the appraisal and home inspection, a credit check, title search and title insurance, or a recording fee.
Keep in mind that the interest rate for reverse mortgages tends to be higher, which can also add to your costs. Rates can vary depending on the lender, your credit score and other factors.
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Is It True I May Actually Buy A New Or Different Home Using A Reverse Mortgage
Yes. There is a reverse mortgage for purchase option that allows qualified borrowers the ability to purchase a qualifying home by putting approximately 45%-62% of the purchase price as a down payment, then using the reverse mortgage for the balance. This means NO monthly payments in your new home for as long as the loan conditions are met. This is a great way to “Right-Size” into a better situation or the home of your dreams.
How Do Reverse Mortgages Work
When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you. Reverse mortgages take part of the equity in your home and convert it into payments to you a kind of advance payment on your home equity. The money you get usually is tax-free. Generally, you dont have to pay back the money for as long as you live in your home. When you die, sell your home, or move out, you, your spouse, or your estate would repay the loan. Sometimes that means selling the home to get money to repay the loan.
There are three kinds of reverse mortgages: single purpose reverse mortgages offered by some state and local government agencies, as well as non-profits proprietary reverse mortgages private loans and federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages .
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Qualifying For A Mortgage
Although credit score matters, it accounts for only part of the big picture. Throughout the mortgage preapproval process, you want to maintain a good credit score as well. If possible, wait to apply for new credit. This includes buying a new car, appliances, or any other loans because they will increase your total debt. Avoid applying for multiple mortgage applications in a short period. This could flag you as a credit seeker. A mortgage broker has access to numerous lenders and will be able to find you the lowest rate available.
What To Ask A Lender About Reverse Mortgages
Before getting a reverse mortgage, ask your lender about:
- how you can get the money from a reverse mortgage
- if there are any fees you have to pay
- what interest rate you have to pay on the money you borrow
- what can cause you to default on the loan
- any penalties you have to pay if you sell your home within a certain period of time
- how much time you have to pay off the loans balance if you move
- how much time your estate has to pay off the loans balance if you die
- what happens if it takes your estate longer than the stated period to fully repay the loan when you die
- what happens if the amount of the loan ends up being higher than your homes value when it’s time to pay the loan back
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How Can I Receive Proceeds From A Reverse Mortgage What Are The Various Options To Receive Reverse Mortgage Funds
Funding options for your Reverse Mortgage include receiving the proceeds of your Mortgage as a one-time lump sum payment or receiving scheduled payments over time to supplement your retirement income. These payment methods can also be combined to receive both as funds up front at time of closing and the rest in incremental scheduled payments.
More details about the Chip Reverse Mortgage Payment Options can be found in our blog.
Where Can I Receive Reverse Mortgage Counseling And Where Can I Get More Detailed Information From A Reverse Mortgage Professional
For Reverse Mortgage Counseling please give us a call at and we can walk you through any of your questions or concerns. Our Reverse Mortgage Professionals are available weekdays from 8:30AM to 5:00 PM to answer any questions you may have.
For detailed information about Reverse Mortgages, download our FREE information guide.
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The Future Of Reverse Mortgages
The conventional wisdom on how to treat housing wealth in retirement has been to preserve it as a last-resort option, with reverse-mortgage lenders thus viewed as lenders of last resort. If housing wealth is not needed to help fund retirement, this view goes, the home can be left as part of the legacy for the next generation. As a result, its easy to find reverse-mortgage naysayers: former Minister of National Revenue Garth Turner famously quipped that reverse mortgages are an ideal strategy, if you hate your children.
The criticisms of reverse mortgages tend to focus on the rates, which are more than double comparable five-year mortgage rates and several percentage points higher than HELOC rates .
Another focus of criticism is the overall indebtedness of seniors who may have few, if any, other options. This lack of options, however, is what puts reverse mortgages on the table in the first place: With lowered incomes in retirement, mortgages and HELOCs may be unavailable to many Canadians.
Simply selling the home to create the desired cash flow can present other problems, as the principal residence provides a source of tax-free compounding that is decreased by downsizing or eliminated by renting. As a result, a senior who wants to age in place, perhaps with the support of a reverse mortgage to cover home renovation or care costs, may find the reverse mortgage the best of their available options.
Why Credit Score Matters
The higher your credit score, the more likely a mortgage broker will be able to find the lowest rate available. In the long run, this can help save thousands on your mortgage payments.
Although it varies, credit scores above 650 allows your mortgage broker to obtain a mortgage approval from a Prime lender. Scores above 650 mean you are a lower-risk borrower, and lenders will be more willing to give you a loan. If you feel like yours could improve, there are a few ways to help increase your credit score.
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Whats The Difference Between A Reverse Mortgage And A Home Equity Loan
With a traditional second mortgage, or a home equity loan, you must have a sufficient debt-to-income ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home, sales price or FHAs mortgage limits whichever is less. Generally, the more valuable your home is, the older you are and the lower the current interest rates, the more money you can borrow.
With a HECM reverse mortgage, you dont make monthly principal and interest payments the lender pays you according to the payment plan you select. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM, you cannot be foreclosed or forced to vacate your house because you missed your mortgage payment.
Who Can Qualify For A Reverse Mortgage
Eligibility criteria for single-purpose and proprietary reverse mortgages vary by lender, but if you’re looking for an HECM, the requirements are clear:
- All borrowers must be 62 or older
- You must own the property outright or have a considerable amount of equity in it
- The home must be your primary residence
- You can’t be delinquent on any federal debt
- You have the financial resources to pay ongoing property taxes, homeowners insurance, HOA fees and other necessary expenses
- You must visit with an HECM counselor approved by the U.S. Department of Housing and Urban Development
- You must be creditworthy and meet other financial requirements
- The property meets all FHA standards and flood requirements
Also, the property must be a single-family home, a two- to four-unit home with one unit occupied by you, an HUD-approved condominium project, or a manufactured home that meets FHA requirements.
If one spouse is not yet 62 years old, they can’t be included as a borrower on the loan. However, they may still be eligible to stay in the home after the borrowing spouse dies without further payments. Also, there is an option to refinance a reverse mortgage after the non-borrowing spouse turns 62 to ensure ongoing payments after the older spouse dies.
How The Money Is Paid Out
The loan amount available through a reverse mortgage depends on the age of the borrower , as well as the homes appraised value, current interest rates, and in the case of the HECM program, the FHA lending limit of $765,600, says Hicks. Theres a variety of choices when it comes to how borrowers receive payments from a HECM reverse mortgage. Options include:
How A Reverse Mortgage Works
Before getting a reverse mortgage, you must first pay off and close any outstanding loans or lines of credit that are secured by your home. These can include a mortgage and a home equity line of credit . You can use the money you get from a reverse mortgage to do this.
You can use the remainder of the loan for anything you wish, such as to:
- pay for home repairs or improvements
- help with regular bills
- cover healthcare expenses
- repay debts
A reverse mortgage may limit other financing options secured by your home. You may not be able to take out a HELOC or similar products.
You may be able to get the money from your loan by:
- taking the money as a one-time lump sum
- taking some of the money up front and taking the rest over time
Ask your lender what payment options they offer for a reverse mortgage. Also ask whether there are any restrictions or fees.
Reverse Mortgages In The Usa Vs The Reverse Mortgage In Canada
If you have heard a bad story about a reverse mortgage, the chances are it relates to the U.S.A rather than Canada.
The reason is that the U.S. product is completely different in every way shape and form to the Canadian product. However, because they are only 2 of a few places that use the term reverse mortgage, much confusion exists and some people attribute stories about the U.S. product to Canada.
For example, if you ever see anyone using the terms FHA or HUD they are 100% talking about the American reverse mortgage product. These terms do not exist in Canada.
In addition to this, the U.S. reverse mortgage has obtained its bad reputation through practices like churning where the reverse mortgage is essentially sold to another lender. This practice is illegal in Canada. And some lenders in the U.S. gave reverse mortgages to husbands or wives on title who were under 55 and did not qualify for a reverse mortgage meaning that if the person on title did pass away, the remaining spouse had to either sell or remortgage. Again this does not happen in Canada anyone on title must be over 55 years old to qualify in Canada.
In essence, reverse mortgages in the U.S.A are not as well regulated and much more of a risky product in Canada.
How You Use Your Credit
The next important factor in calculating a credit score includes how much you owe. Depending on your current payments for various loans, your lender will determine whether you can take on more. For example, you could be maxing out on your credit cards. A lender may see this as high risk because they dont believe you can pay for a new loan on time.
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What Is A Fico Score
FICO is the type of credit score used by 90% of the U.S. lending community, including mortgage lenders. FICO scores are determined by your payment history, how much of your available credit youre currently using, how long youve had credit accounts , and how much new credit youve opened and applied for.
When you apply for a mortgage to buy a home, your lender will look at your FICO scores from the three major credit bureaus: Experian, Equifax, and TransUnion.
The information in your credit report contributes to your credit scores. Each of the credit bureaus maintain a credit profile on you that includes a detailed credit history, showing the types of accounts you have held or currently hold, and whether you paid them on time. Your credit report will show credit cards, student loans, car loans, personal loans, and past or current mortgages.
Your payment history is the biggest factor in your credit score. Other elements that influence it are your credit utilization ratio , and the age of your credit .
Below, youll see the minimum FICO credit score needed for popular mortgage loan programs.
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