Home Equity Conversion Mortgage or HECM is the only reverse mortgage insured by the U.S. Federal Government, and as an approved lender, you stand to diversify your business by allowing homeowners to borrow against the accumulated equity in their homes. With more than 100,000 people applying for reverse mortgages on their properties, your business stands to gain exponentially by partnering with a company who can provide efficient reverse mortgage solutions for US based lenders.
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For the past 22 years, we have effectively serviced reverse mortgage lenders, servicers, and other providers with highly tailored solutions targeted towards the reverse mortgage industry. Our support offerings include -
Outsource2india has consistently met the growing requirements of an ever-expanding mortgage lender client base in a dynamic industry. One of the reasons for our exceptional growth lies in our quality-driven processes, which ensures we can manage thousands of reverse mortgage applications, line of credit requests, etc. in as short a time as possible. By outsourcing to us, you stand to gain from the following -
The reverse mortgage industry is gradually expanding as more and more customers learn about its inherent benefits. In such a dynamic environment where the guidelines are regularly changed, it is a challenge for lenders to keep up-to-date with the regulatory environment and satisfy customers at the same time. At O2I, we offer a comprehensive suite of support services for the mortgage industry, including assistance for Whole Loan Purchase Review Support Services, Mortgage loan boarding support services, Assignment of Mortgage Services, Warehouse Line QC Audit Services, Post-close QC Audit Services, Mortgage Lien Release Support, Mortgage Title Policy & Document Retrieval Support, pre-fund QC audit, mortgage robotic process automation, assistance for mortgage default management, Residential Mortgage Loan Services, Renovation Loan Mortgage Services, assistance for mortgage processing support, mortgage appraisal support, closing support, and exceptional underwriting support services.
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A reverse mortgage is a type of loan that allows homeowners ages 62 and older, typically who’ve paid off their mortgage, to borrow part of their home’s equity as tax-free income. Unlike a regular mortgage in which the homeowner makes payments to the lender, with a reverse mortgage, the lender pays the homeowner.
Homeowners who opt for this kind of mortgage don’t have a monthly payment and don’t have to sell their home (in other words, they can continue to live in it), but the loan must be repaid when the borrower dies, permanently moves out or sells the home.
One of the most popular types of reverse mortgages is the Home Equity Conversion Mortgage (HECM), which is backed by the federal government.
Despite the reverse mortgage concept in practice, qualified homeowners may not be able to borrow the entire value of their home even if the mortgage is paid off.
The amount a homeowner can borrow, known as the principal limit, varies based on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates, the HECM mortgage limit ($822,375 in 2021) and the home’s value.
Homeowners are likely to receive a higher principal limit the older they are, the more the property is worth and the lower the interest rate. The amount might increase if the borrower has a variable-rate HECM. With a variable rate, options include:
If you choose a HECM with a fixed interest rate, on the other hand, you’ll receive a single-disbursement, lump-sum payment.
The interest on a reverse mortgage accrues every month, and you’ll still need to have adequate income to continue to pay for property taxes, homeowners insurance and upkeep of the home.
Just like any other type of mortgage, you own the home in a reverse mortgage situation.
When the borrower dies or moves, however, the mortgage is payable in full. If you can’t, or won’t, pay off the debt, the lender can sell the home to recoup the money it’s owed, explains Michael Sullivan, personal financial consultant with nonprofit credit counseling and debt management agency Take Charge America.
“Typically, the homeowner or beneficiaries are not responsible for any costs if the house is sold for less than the amount owed,” adds Sullivan.
Supplementing retirement income, covering the cost of needed home repairs or paying out-of-pocket medical expenses are common and acceptable uses of reverse mortgage proceeds, according to Bruce McClary, spokesperson for the National Foundation for Credit Counseling.
“In each situation where regular income or available savings are insufficient to cover expenses, a reverse mortgage can keep seniors from turning to high-interest lines of credit or other more costly loans,” McClary says.
To be eligible for a reverse mortgage, the primary homeowner must be age 62 or older. The additional eligibility requirements include:
“Seniors should be careful to make the most of the loan by budgeting carefully in order to avoid running out of funds too soon and to be sure that taxes and insurance are paid as agreed,” cautions McClary.
There are different types of reverse mortgages, and each one fits a different financial need.
The amount of money you can get from a reverse mortgage depends upon a number of factors, according to Boies, such as the current market value of your home, your age, current interest rates, the type of reverse mortgage, its associated costs and your financial assessment.
The amount you receive will also be impacted if the home has any other mortgages or liens. If there’s a balance from a home equity loan or home equity line of credit (HELOC), for example, or tax liens or judgments, those will have to be paid with the reverse mortgage proceeds first.
“Regardless of the type of reverse mortgage, you shouldn’t expect to receive the full value of your home,” Boies says. “Instead, you’ll get a percentage of that value.”
The closing costs for a reverse mortgage aren’t cheap, but the majority of HECM mortgages allow homeowners to roll the costs into the loan so you don’t have to shell out the money upfront. Doing this, however, reduces the amount of funds available to you through the loan.
Here’s a breakdown of HECM fees and charges, according to HUD:
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.
While borrowing against your home equity can free up cash for living expenses, the mortgage insurance premium and origination and servicing fees can add up. Here are the advantages and disadvantages of a reverse mortgage.
As with any mortgage, there are conditions for keeping your reverse mortgage in good standing, and if you fail to meet them, you could lose your home. The ways you could violate the terms of a reverse mortgage include:
Bottom line, “if a borrower fails to comply with the terms of the reverse mortgage contract, they could lose their home,” says Darryl Hicks, a spokesperson for the National Reverse Mortgage Lenders Association. “There are consumer protections established by HUD and by some states that require the company servicing the reverse mortgage to do everything possible to ensure that doesn’t happen.”
If you fail to pay property taxes, for example, or keep the home properly insured, the loan servicer could advance available loan proceeds from the reverse mortgage to cover these expenses, Hicks says. If there are not adequate proceeds available to cover these types of payments, the servicer could elect to advance its own funds to make the outstanding payments.
“Once this happens, the loan will be considered to be in technical default and the loan servicer will try to establish a repayment plan with the borrower to pay back any funds advanced to pay the property taxes or insurance premiums,” Hicks says. “If the terms of the repayment plan cannot be met, the loan servicer will have no choice but to call the loan due and payable, and could move to foreclose on the property.”
A reverse mortgage can be a help to homeowners looking for additional income during their retirement years, and many use the funds to supplement Social Security or other income, meet medical expenses, pay for in-home care and make home improvements, Boies says.
There are also flexible ways to receive the money from the reverse mortgage: a lump sum, a monthly payment, a line of credit or a combination.
Plus, if the value of the home appreciates and becomes worth more than the reverse mortgage loan balance, you or your heirs may receive the difference, Boies explains.
The opposite, however, can pose a problem: If the balance exceeds the home’s value, you or your heirs may need to foreclose or otherwise give ownership of the home back to the lender.
There are also potential complications involving others who live in the home with the borrower, and what might happen to them if the borrower dies. Family members who inherit the property will want to pay close attention to the details of what is necessary to manage the loan balance when the borrower dies.
“There are provisions that allow family to take possession of the home in those situations, but they must pay off the loan with their own money or qualify for a mortgage that will cover what is owed,” McClary says.
Additionally, while not all reverse mortgage lenders use high-pressure sales tactics, some do use them to attract borrowers.
“It is always best to receive guidance from a nonprofit agency that offers reverse mortgage counseling before signing a loan agreement,” McClary recommends. “Taking advice from a celebrity spokesperson or a sales agent without getting the facts from a trusted, independent resource can leave you with a major financial commitment that may not be best for your circumstances.”
If a reverse mortgage sounds like a good idea for you, take time to research you options. Here are the top 10 reverse mortgage lenders as of 2020, according to Home Mortgage Disclosure Act data:
If you’re not sold on taking out a reverse mortgage, you have options. In fact, if you’re not yet 62 (and ideally not turning 62 soon), a home equity loan or HELOC is likely a better option.
Both of these loans allow you to borrow against the equity in your home, although lenders limit the amount to 80 percent to 85 percent of your home’s value, and with a home equity loan, you’ll have to make monthly payments. With a HELOC, payments are required once the draw period on the line of credit expires.
The closing costs and interest rates for home equity loans and HELOCs also tend to be significantly lower than what you’ll find with a reverse mortgage.
Aside from a home equity loan, you could also consider:
As you shop for a reverse mortgage and consider your options, be on the lookout for two of the most common reverse mortgage scams:
The best way to avoid a reverse mortgage scam is to be aware and vigilant. If an individual or company is pressuring you to sign a contract, for example, it’s likely a red flag.
A reverse mortgage presents a way for older homeowners to supplement their income in retirement or pay for home renovations or other expenses such as healthcare costs. There are eligibility requirements that specify who can take advantage of this kind of loan, how much money can be received and what the homeowner has to do to remain in good standing.
It’s best to speak with a HUD-approved counselor before committing to a reverse mortgage (and if you’re looking to get a HECM, you’ll be required to). A counselor can help outline the pros and cons and how this kind of loan might impact your heirs after you pass away. To locate an FHA-approved lender or HUD-approved counseling agency, you can visit HUD’s online locator or call HUD’s Housing Counseling Line at 800-569-4287.
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