Although there are three types of reverse mortgages there are only two that are usually referred to. The most common reverse mortgage is formally called a Home Equity Conversion Mortgage (HECM). This type is backed by the federal government’s Department of Housing and Urban Development (HUD). The other type is called a proprietary reverse mortgage and is backed by private companies and not federally insured.

A reverse mortgage is simply a high cost loan, but no one seems to tell us that. The upfront costs can be very high. This makes it even more expensive if you stay in your home for a short period of time. This type of reverse mortgage is easy to get if you qualify by age and have sufficient equity. To put it simply – the older you or you and your spouse or partner are, the more likely there will be more equity making it more valuable so you would be able to borrow more money. You’re borrowing against your own equity.

As a former real estate broker I know a lot about reverse mortgages. They’ve been around for many years. But recent television commercials have made people much more aware of them.

There is so much television advertising for reverse mortgages right now and they make it all sound so good and the way to go but they don’t tell you about the high fees that go along with these loans. The federal government’s Consumer Law Center reports that a $250,000 loan could cost you $25,000 in fees. Because these fees are so high, a lot of money can be made so telemarketers are calling non-stop and pestering some homeowners and senior homeowners right and left.

There are many scams out there and scrupulous mortgage brokers. So even if you decided you want to pay the high fees and get a reverse mortgage it would be difficult to know who to go with.

Another problem that has been reported is that people, who have taken out reverse mortgages, were not able to get the monthly amounts they could draw on.

For a HECM you can choose a fixed monthly cash advance for a specific time for as long as you live in your home. The other option is getting a line of credit, so you can draw on the loan amount at any time or you can get a combination of the two.

So if you decide you want a reverse mortgage these are some of the things you want to know. Make sure the mortgage broker is reputable – check with your local better business bureau. Make sure you know exactly how much the loan is going to cost you in fees and find out ALL the limitations, there are many.

This is basically how a reverse mortgage works. Just remember that you’re taking out a high cost loan, that’s what it boils down to. Think other options. Explore home equity loans first especially when the interest rates are down and see if you can do better. You may want to consider selling your home and downsizing and tap your equity that way.

It may not be an easy decision depending on your needs. But there are lots of creative ways to tap the equity in your home. Seek them out before you risk getting a reverse mortgage.

For more tips and secrets about reverse mortgages or finding the best home loan or home mortgage go to Real-Estate-Financing-Tips.com for real estate financing tips, trade secrets, help, quotes and resources including refinancing, creative financing and bad credit real estate financing

This will be possibly an over-simplified explanation for those who possess a great deal of reverse mortgage savvy, but for those who just want to get a basic idea of what this program is all about, this just might help.

Firstly, a typical loan that everyone is familiar with is now being called a forward mortgage. A forward mortgage is a rising equity, falling debt loan. In other words, as you pay the monthly payments, your equity in the property rises as your debt (the mortgage balance) decreases.

A reverse mortgage operates as you might guess in the reverse of this. Rather than paying money monthly to a lender, a lender pays money to you (in a number of different ways we will discuss later) and instead of making a monthly payment of principal or interest, the principal does not decrease and the interest is tacked onto the loan balance. Therefore your debt is rising and your equity in the property is decreasing.

There are adjustable and fixed rate reverse mortgages available today and each one has a different way of determining the interest rate at which you will accrue interest. The fixed rate is an easy concept for everyone, the lender quotes a rate and there is only one rate represented. However, with the adjustable rate mortgages, there are actually two rates listed; the initial rate and the effective rate.

The effective rate is never a rate at which you accrue interest. It does, however, affect how much money you may be eligible to receive. The reverse mortgage works differently than any other loan in this respect in that the effective rate is a rate that uses a completely different index. The initial rate is the rate at which you begin to accrue interest from the very first day and then your rate changes either monthly or annually depending on whether you opted for a monthly or annual adjustable rate program.

Your lender will input your property address, your age (dates of birth for the borrower and co-borrower) and property value into the HUD Calculator and the way the reverse mortgage works here is also very different than any other loan. Rather than looking at your credit and income to determine how much loan you qualify for, the calculator will come back and determine a Principal Limit based on all the information and this is the gross amount for which you qualify.

The Principal Limit is not to be confused with the HUD Lending Limit for the area, which is now $417,000 across the nation, except in some high cost areas. From the Principal Lending Limit, there are then some items that require negative adjustments. The first adjustment to the amount is the Servicing Fee Set Aside.

In a forward mortgage, a borrower receives a rate that already has a portion of the interest rate included which will be used to cover the servicing costs. This is not how a reverse mortgage works. HUD requires the Set-Aside sufficient funds to service your loan through the expected term of the mortgage by deducting this amount and not making it available to the borrower.

This is not a charge to the borrower up-front, but rather is added to the loan monthly to pay for the costs of the lender required to service the loan.

You only actually pay for the servicing fee for each month that the loan is actually being serviced and the monthly amount can vary, but cannot exceed $30.00 for an annual adjustable rate loan or $35.00 for a monthly adjustable rate loan. Every borrower has always paid for the servicing of their loans, forward or reverse, but the reverse mortgage is unique in the way it discloses and accounts for that cost.

The next unique way that a reverse mortgage works is in the amount of the fees charged and on what basis. Since the loans can start at next to nothing but grow throughout their term, the HUD mortgage insurance and fees are determined by the property value or HUD Principal Lending limit for the area, whichever is less rather than on the initial loan amount as in a traditional forward mortgage.

Also, since HUD is insuring that borrowers will always receive their money (and on time), the loan is non-recourse so no one can ever seek to collect more than the property is worth and that they can live in their homes for the rest of their lives no matter how long that may be without making a payment, the Up-Front Mortgage Insurance Premium is not inexpensive.

A forward mortgage does not give a borrower any of those protections. So the fees charged on a reverse mortgage include the typical third party costs (title insurance, appraisal, escrow/attorney closing costs, etc) and also an origination fee but typically the largest fee you will see on any reverse mortgage is the Up-Front Mortgage Insurance which is paid to HUD.

There can be no other liens on the property. If you owe money on a current first or second mortgage, those must be paid in full and then the remainder after all the described adjustments is the Net Principal Limit, and this is the amount left over for the borrower to use for other purposes.

Another way a reverse mortgage works differently from a forward mortgage is that with these funds a borrower can choose several options as to how they can take their money. Borrowers can opt to keep the funds available to them in a line of credit (only this one can’t be frozen like many of today’s equity lines of credit are facing).
Borrowers can choose to receive a payment for life or for a set period of years if they know they have a specific need. Borrowers can also choose to take all the remaining funds at once or a combination of any or all of the above. And that’s another way a reverse mortgage works that is different that any forward mortgage!

A reverse mortgage works like no other loan instrument available. That may well be why so many people have such a hard time getting their arms around the concept and why every program mandates third-party counseling.

For those who have mastered the concept and have had the chance to see what a positive influence the reverse mortgage has had in their lives, they’re just glad they took the time to learn all about it.

If you or a love one you know has been wrestling with this program, talk to your trusted financial advisor(s), your family, go to sources like AARP and the National Association of Reverse Mortgage Lenders

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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As great as this product is, it is not right for everyone and it is always the best idea to know your goals and to have the help and support of your family and a trusted financial advisor.

In this case, let’s start with the con’s. Reverse mortgages are expensive loans. Because you have to pay not only an origination fee but also the HUD Up-Front Mortgage Insurance, the initial costs can be staggering to some.

Also, there are many ways to take your funds with a reverse mortgage and since the loan balance grows over time, the fees are based on the principal lending limit or the property appraised value, whichever is less. As an example, the owner of a $417,000 value property in Florida (the new national limit) where the tax stamps are high can expect to pay somewhere in the neighborhood of $18,000 in fees and insurance for their loan.

They do not have to pay this money out of pocket up front, but it is added to the loan balance and so if the borrower is not looking for a long term solution, a reverse mortgage is probably the last loan that should be considered. Another possible negative of a reverse mortgage is for seniors who are not paying off a current mortgage but take all their funds up front for various purposes and it is two-fold.

Firstly, seniors need to concern themselves with eligibility for some need-based programs such as Medicaid. By placing all their reverse mortgage proceeds into a bank account at one time, seniors could make themselves ineligible for necessary programs and so this should always be kept in mind when determining how to take your funds.

Secondly, many unscrupulous folks are always looking for a way to separate seniors from their money. Whether it be with a bad investment (and bad can be defined as risky or one that cannot be accessed for long periods of time without penalty which the senior borrower may not have) or just someone looking to steal from the senior, having a lot of cash is a tempting target and many seniors are too trusting. Some couples find that they will receive more money by removing the younger borrower from the title and using only the older borrower.

Unless there is adequate insurance or other arrangements have been made upon the passing of the older spouse, we do not recommend this course of action due to the fact that the younger spouse would then be left with a balance for which they probably could not qualify for a reverse mortgage of their own and they would be forced to move.

Now the pro’s! A reverse mortgage allows senior borrowers to live for the rest of their lives in a home with no mortgage payments. The home can be financed or owned free and clear and the borrowers can still obtain a reverse mortgage. There are no income or credit requirements to meet. Unlike conventional forward mortgages, borrowers do not have to make monthly payments so they do not have to qualify like forward mortgage borrowers.

Borrowers always own their home and borrowers or their heirs dispose of their property just the same with a reverse mortgage as they would with any other home loan. Reverse mortgage proceeds are tax free, and borrowers can use the money for any purpose they choose. Borrowers can modernize or alter their home for comfort. They can pay for needed medical expenses, travel or other recreation, they can use the money for grandchildren’s college, or any purpose they choose. It’s your home, and your money.

There’s never a monthly mortgage payment so as long as the senior homeowner lives in the property, they never have to worry about where they will get the money to make the payments. The loans are government insured and therefore, the senior homeowner is guaranteed to always have the funds available to them, and if the lender does not pay funds to the homeowner in a timely manner, the bank owes the homeowner a late charge! HUD guarantees that as long as you have funds left in your line of credit, you will always have them available.

That is very comforting when banks are freezing lines of credit daily on normal Home Equity Lines of Credit. And finally, no matter how long you live in your home, and no matter how much money you take from it in payments or what the real estate values do, you and your heirs can never owe more than the property is worth. Many homeowners today are upside down on values as values have dropped but this can never happen with the HUD Home Equity Conversion Mortgage otherwise known as the government reverse mortgage.

As with any product, knowing whether or not a reverse mortgage is right for you is a matter of education and looking at your individual circumstances. We have seen reverse mortgages do some great things for some people who really wanted and needed them, but only you in conjunction with your trusted financial advisor and family can tell if this is the right loan for you.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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Their official announcement came out at 5:00 tonight stating that any loans in their pipeline must close by November 26, 2008 or the loans would have to be changed to the government Home Equity Conversion Mortgage (HECM or Heck-um) reverse mortgage program.

This comes as no surprise at a time when credit is so tight and the jumbo product is not readily marketable in the secondary mortgage market.

There are rumblings that other lenders may come out with other programs in the not too distant future, and in fact, this last remaining lender stated in their announcement that this is not an elimination of their program but rather a suspension.

However, the last few announcements from other lenders also cited temporary suspensions and none have yet to re-emerge.

What does this mean to senior homeowners with larger, more expensive homes, it means that for the time being if they are interested in a reverse mortgage, the HUD HECM is about the only game in town.

When H. R. 3221 passed, there was quite a buzz that the limits may go to $625,500 or at least that amount in high cost areas (which would have represented a sizable increase in high cost areas) but when HUD finally announced the actual limits, the nationwide limit for most of the United States came in at $417,000.

This helps many homeowners in areas that previously had lower limits but they were owners of more expensive homes, but it didn’t do too much for seniors in those high cost areas who owned properties valued at $625,500 and above who were previously short to close on the old limit of $362,790 the difference just wasn’t great enough.

This turn of events comes as many seniors have seen the values of their portfolios dive in the past 15 months and are now looking for some help that they may have felt they did not need before.

So what should senior borrowers do? The future is never certain. If the HUD HECM does net enough for the needs of the household, then that program should always be available.

Although it is never advisable to think of a reverse mortgage as a temporary solution, I have already spoken to two borrowers who have asked if they could get a HUD HECM and then if a suitable jumbo program does re-emerge, they wanted to know if they could refinance their HECM mortgage.

The idea behind a reverse mortgage is that you never have to make a payment for life for as long as you live in that property and with the costs associated with the program, it is not wise to think of reverse mortgages as temporary solutions.

However, for some borrowers with an immediate need and nowhere else to turn, it was either take what was available now and then look at other options later on if/when they became available, sell now at a reduced price for a quick sale or lose their homes.

The last borrower with whom I spoke felt as the though the costs for a reverse mortgage were only a fraction of what he would lose by selling in this market and the benefit received, even if he had to get another reverse mortgage later and paid the fees of a proprietary reverse mortgage then, he felt he would be much better off than taking the loss of the value in today’s market.

So are Jumbo Reverse Mortgages extinct?

I really don’t think so but for the time being Jumbo Reverse Mortgages are unavailable and barring a very deep pockets investor with a very large appetite for this product, it will take a strong improvement in the secondary market before the Jumbo Reverse Mortgages are readily available once again.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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The HECM or Heck-um as you may hear it called, is the government insured reverse mortgage program offered by lenders and insured by the Federal Housing Administration.

Most Reverse Mortgage borrowers have chosen the adjustable rate option for the simple fact that the fixed rates have historically been quite a bit higher than the adjustable rates, the borrowers qualified for less money with fixed rates and since the borrowers have to take a full draw on the fixed rate loans, it just did not make sense for many senior borrowers.

It is finally time for senior borrowers to look at the fixed rates as a viable option.

The fixed rate option for the HUD HECM Reverse Mortgage for the week of October 28, 2008 is down to 5.68% (this is the Initial Interest Rate and the Effective Rate on the fixed program since there are no indices or margins to consider).

This means that when you compare this to an adjustable HECM on the Constant Maturity Treasury with a 1.75% margin, the fixed rate, will never increase and the rate is at 5.68% versus the adjustable option which can increase.

With the adjustable rate, the borrower’s eligibility is based not on the Initial Rate of 3.41% but rather on Expected Rate which is based on the 10 year CMT plus the margin and that rate today is 5.49%.

In other words, the amount the borrower will receive under the two options is extremely similar with today’s fixed rates instead of the large disparity that fixed rate borrowers have always seen in the past.

What does this mean for senior borrowers? It means that they have a better opportunity now to obtain a low fixed rate Reverse Mortgage than at any time.

Also, since the rate is fixed, it will never go up even if the interest rates rise in the future. This means your equity will not erode as fast if rates do rise.

If the rates go down in the future, the fixed rate will not change with those changes either, but the adjustables have a ceiling, or cap on the rate of 10% above the initial rate so the interest that accrues on the adjustable rate reverse mortgages could go up dramatically if the rates rise in the future.

Historically, adjustable rates have not been a bad choice either, but for the next few years in this very volatile economy, no one knows where rates are headed.

The other consideration with a fixed rate reverse mortgage loan is payment options.

On the adjustable reverse’s, you can get a lump sum payment (that is all your money up front); a line of credit to use when you want that grows on the portion that you don’t use; a monthly payment for a set period of time or for life; or a combination of any of these terms (in other words, you could take cash payment now AND keep some back for a line of credit for when you need it AND get a monthly payment).

However, the only option available on the fixed rate is the one time distribution at the initial funding. If you are paying off an existing mortgage and need it all up front, this would not be a problem and the fixed rate is an excellent option, especially now.

If you wanted to get a line of credit or monthly payments, they you still need to look into the adjustable rate options.

So as is the case with reverse mortgages in general, education and knowing what your needs are and what will fill those needs is the key to deciding what’s best for you. A fixed rate is something that many borrowers like the sound of but shied away from as soon as they saw that they received a lot less money under this option.

If this is the case for you and a one-time distribution works for your circumstances, now is the time to reconsider the fixed rate option. The rate is not locked until the lender is ready to draw the loan documents so it is not like a forward mortgage, you cannot lock in a rate for 30 days up front.

Nonetheless, if a fixed rate reverse mortgage sounds good to you, then there is no time like the present to take a hard look at this opportunity with the rates being down.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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