To Qualify For A Reverse Mortgage In Canada The Following Factors Are Assessed:
- You and your spouse’s age
- Location of your home
- Type of home
- Appraised value of your home
- The condition of your home
- Your home equity
The Reverse Mortgage Facts You Need to Know!
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What Is Hecm For Purchase
A Home Equity Conversion Mortgage for Purchase is a reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage.
Real estate professionals who are interested in learning more about HECM for Purchase can download free resources from NRMLAonline.org
If I Have A Reverse Mortgage Loan Will My Children Or Heirs Be Able To Keep My Home After I Die
It depends. If you have a Home Equity Conversion Mortgage your heirs will have to repay either the full loan balance or 95% of the homes appraised valuewhichever is less.
Upon the death of the borrower and Eligible Non-Borrowing Spouse, the loan becomes due and payable. Your heirs have 30 days from receiving the due and payable notice from the lender to buy the home, sell the home, or turn the home over to the lender to satisfy the debt. However, it may be possible for the timeline to be extended up to a year so that your heirs can sell the home or obtain financing to purchase the home. Your heirs can consult a HUD-approved housing counseling agency or an attorney for more information.
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Reverse Mortgages Are Non
Upon the sale of the property, all remaining equity belongs to the heirs, just as with a forward mortgage.
As we stated previously, a reverse mortgage is a non-recourse loan. Which means that, if with the combination of the accrued interest and current market conditions the property will not sell for enough to repay all amounts owed on the loan, then the borrowers heirs are not liable for any additional amounts owed.
Borrowers pay for mortgage insurance to the Federal Housing Administration , a division of The Department of Housing and Urban Development which guarantees that the borrower will always have access to the reverse mortgage proceeds and that the borrowers heirs will never owe more than the property is worth on a bona fide sale to a third party or a Deed back to the Lender.
The program does require a bona fide sale to a non-related third party, heirs cannot sell the home to other family members for less than is owed on the reverse mortgage expecting the FHA insurance to cover any shortfall to the lender on the amount owed.
There are no restrictions on sales to family members or otherwise, just in the case of a balance of the reverse mortgage being higher than the value of the property and heirs wanting the lender to forgive the over value portion of the loan and keep the property within the family.
How Heirs Pay Off A Reverse Mortgage
What happens when the last reverse mortgage borrower dies? How do the borrower’s estate or heirs immediately pay off the reverse mortgage balance, and how will they know the amount of the payoff? Here is the four-step payoff process:
Cease payouts
Upon the borrower’s death, the estate executor notifies the reverse mortgage lender. Reverse mortgage lenders generally track borrower deaths through public records and take action to terminate a loan when the last borrower dies. If the borrower was receiving monthly checks from the reverse loan at the time of death, the lender ceases making payments. If the borrower had a line of credit at the time of death, the lender closes the line of credit.
Conduct appraisal
Within 30 days of notifying the borrower’s estate or heirs, the HECM lender dispatches a HUD-approved appraiser to the property. The appraiser evaluates the home and assigns an appraised value, which the lender uses to determine the loan amount that is due and payable. This amount is the lesser of the reverse mortgage balance or 95 percent of the appraised value of the property.
Six months to satisfy the debt
Extension requests
Heirs can request up to two 90-day extensions to sell or refinance the property. To receive approval for the extension, they must prove that they are arranging the financing to keep the house or that they have it listed for sale.
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Your Right To Cancel A Reverse Mortgage
With most reverse mortgages, you have three business days after closing to cancel the deal for any reason, without penalty. This is known as your right of rescission. To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt so that you have documentation of when you sent and when the lender received your cancellation notice. Keep copies of any communications between you and your lender. After you cancel, the lender has 20 days to return any money youve paid for the financing of the reverse mortgage loan. If you believe there is a reason to cancel the loan after the three-day period, seek legal help to see if you have the right to cancel.
Note: This information only applies to Home Equity Conversion Mortgages , which are the most common type of reverse mortgage loan.
What Should I Remember When Thinking About A Reverse Mortgage
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What Happens When A Home With A Reverse Mortgage Is Sold For Less Than The Mortgage Balance
HomeEquity Bank provides a guarantee to its clients. If there is a negative equity situation, they guarantee not to take more than the value of the property. Other banks will go after the borrower or the estate for the outstanding balance, but HomeEquity Bank will take a loss on the mortgage.
In this situation, HomeEquity Bank asks the borrowers realtor or lawyer to provide comparable property values. Once they are satisfied with those, and the borrower has a firm offer, the difference is written off as a loss.
Spouses And Partners Have Both Rights And Obligations
When you and your spouse are co-borrowers on a reverse mortgage, neither of you have to pay back the mortgage until you both move out or both die. Even if one spouse moves to a long-term care facility, the reverse mortgage doesnt have to be repaid until the second spouse moves out or dies.
Because HECMs and other reverse mortgages dont require repayment until both borrowers die or move out, the Consumer Financial Protection Bureau recommends that both spouses and long-term partners be co-borrowers on reverse mortgages.
If your spouse is not a co-borrower on your reverse mortgage, then they may have to repay the loan as soon as you move or die. As for whether they can remain in your home without repaying, that depends on the timing of the HECM and the timing of your marriage.
If a reverse mortgage borrower took out an HECM before August 4, 2014, then a non-borrowing spouse does not have a guaranteed right to stay in the house. Instead, a non-borrowing spouse will either have to move out of the house or pay off the reverse mortgage within six months of receiving notice from the lender.
The rules are different for HECM loans that were issued after August 4, 2014. With these loans, an eligible, non-borrowing spouse can stay in the home after the borrowing spouse moves out or dies, but only if they meet these criteria:
If youre an eligible non-borrowing spouse, the reverse mortgage will not need to be paid until you die or move out of the house.
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Questions To Ask Before During And After
Questions to ask before getting a reverse mortgage
If you are thinking about a reverse mortgage, the following are some important questions you should ask. Talk about them with your family. Meet with a HUD-certified housing counselor. Consult a trusted, independent financial adviser or attorney.
What questions should I ask AFTER I have decided to get a reverse mortgage but BEFORE I start the process?
What questions should I ask DURING the reverse mortgage process?
What A Reverse Mortgage Costs
The cost of the loan depends on:
- how much you borrow
- how you take the amount you borrow
- the interest rate and fees
- how long you have the loan
Over time, your debt will grow and your equity will decrease .
See how much a reverse mortgage would cost over different time periods, such as 10 or 20 years.
Your lender or broker must go through reverse mortgage projections with you, showing the impact on your home equity over time. Get a copy of this to take away, and discuss it with your adviser. Ask questions if there’s anything you’re not sure about.
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What Causes A Reverse Mortgage Foreclosure
With most mortgages, several months of missed mortgage payments typically kickstarts the foreclosure process. However, reverse mortgages dont require monthly payments to the lender, and some homeowners dont understand when a lender can require the repayment of the loan. With a reverse mortgage, there are several trigger or maturity events as they are called in lending language that could set the reverse mortgage foreclosure process in motion, including:
- All the owners die
- One owner dies and the surviving spouse was not on the reverse mortgage loan
- The property is sold or transferred
- The borrower doesnt use the home as a primary residence
- The borrower doesnt live in the home for longer than 12 months in a row
- The borrower doesnt pay property taxes or homeowners insurance on time
- The borrower doesnt maintain the home
Borrower Requirements Under Hecm For Purchase To Get A Reverse Mortgage Are:
- The minimum age is 62 years old.
- Borrowers must own the property outright or have a considerable amount of equity in it.
- The home must be the borrowers primary residence.
- The borrower must be able to pay the homes property taxes, insurance premiums, homeowners association dues and any other ongoing property costs.
- The borrower must have no delinquent federal debt.
The property must pass certain requirements, such as meeting all FHA standards and flood requirements.
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Weighing The Pros And Cons
The HECM for Purchase can be a highly beneficial tool for those who find themselves wanting to move to a new home during retirement, in that it essentially allows them to do so without making monthly mortgage payments toward repaying the loan.
However, like all loans, there are some pros and cons.
Pros
- For the government insured HECM for Purchase, borrowers are afforded the same protections and benefits of all HECM loans, including its non-recourse feature, which means when the loan comes due, the borrower does not have to repay more than the home is worth at the time of sale.
- The product allows borrowers to purchase a new home with a reverse mortgage all in a single transaction.
- The HECM for Purchase allows borrowers to eliminate their monthly mortgage payments while they enjoy a new home.
Cons
- Like all reverse mortgages there can be downsides for some borrowers. In instances where a borrower passes away, the borrowers heirs may see reduced inheritance after the sale of the home and repayment of the loan.
- There are upfront and ongoing insurance premiums required to maintain the loan, in addition to standard closing costs.
- A reverse mortgage is simply not right for everyone, and its important to consult with trusted advisors as to the options available and how a reverse mortgage compares.
Other considerations and where to learn more
Turn Home Equity Into Cash
Theres no retirement like home. If youre like most Canadian homeowners 55 or over, much of what you own fits into one of two categories the equity in your home and the money you have saved. Chances are, the value of your home has grown over the years and makes up a good portion of your net worth. While having a home that has built value is a positive, you typically cant spend that value unless you sell your home. A Reverse Mortgage allows you to turn some of your home equity into tax-free cash. You can get up to 55%* of its value. It also ensures you have access to that cash whenever you want it. Youll maintain ownership and control of your home without the obligation to make regular mortgage payments until you move or sell.
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How An Equity Release Agreement Works
One option is for one or more investors to buy portions of your home’s equity through a property investment fund. You pay fees which are periodically deducted from the remaining equity in your home. The investor’s share of your home’s equity goes up over time, and yours goes down.
For example, suppose your home is currently worth $500,000. You sell 20% of your home’s equity in return for a lump sum of $100,000. The fee charged by the fund may vary, depending on your circumstances and the agreement. If the fund charges an initial fee of $30,000, it may take $130,000 of your equity to cover both the lump sum and periodic fee.
Additional amounts of equity are deducted each time the periodic fee falls due . The fee is a set percentage of the fund’s equity in your home. So, as the fund’s share of equity increases, the fee goes up.
When the equity release agreement ends, and your home is sold, the fund gets their share of the proceeds. That is, the proportion of your home’s equity they have accrued. You or your deceased estate get the remainder of the proceeds, if any.
The proportion of home equity you keep will reduce over time, and could even go down to zero.
Check your agreement to see what happens if your equity goes down to zero. Make sure you can continue living in your home, until sold by you or your deceased estate.
How Home Equity Release Works
‘Equity’ is the value of your home, less any money you owe on it .
‘Home equity release’ lets you access some of your equity, while you continue to live in your home. For example, you may want money for home modifications, medical expenses or to help with living costs.
Ways to access equity in your home include:
- reverse mortgage
- home sale proceeds sharing
- equity release agreement
- the Government’s Pension Loans Scheme
The amount of money you can get depends on:
- your age
- the value of your home
- the type of equity release
Your decision could affect your partner, family and anyone you live with. So take your time to talk it through, get independent advice and make sure you understand what you’re signing up for.
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What Are The Red Flags I Need To Look For During The Reverse Mortgage Process
Always be wary if the lender:
Additional red flags
- Someone tries to sell you something and suggests you pay for it with a reverse mortgage.
- If it seems like you are getting free money, you arent. Talk with someone else to better understand what you are getting and what the costs will be.
- The deal sounds too good to be true. You may be missing some important information.
- A company charges a fee to find a reverse mortgage lender.
- Liens on your home appear on the title that you do not understand.
