When it comes to exploring reverse mortgages and how they could be helpful to your situation you first should have an understanding of the terms that will be used throughout the process. These terms will help you fully understand how a reverse mortgage works.
Here are a few terms that may be helpful in your research to find out what a reverse mortgage is. Use these as guides during conversations with reverse mortgage professionals.
Amortization: Amortization refers to the paying off of debt with a payment schedule in regular installments over a set amount of time. This term has an added element in reverse mortgages because reverse mortgages are negatively-amortizing loans. Rather than minimizing the balance over time, the loan balance increases over time to the amount that you will owe once the loan becomes due and payable. An amortization table or amortization schedule will show you the breakdown of payments and interest that the borrower will pay over time.
Counselling: Reverse mortgage counselling is a mandatory component of the reverse mortgage application process. In fact, in order to submit an application, reverse mortgage counselling must be completed. The counselling is usually a 90-minute session provided by an independent, third party approved by the U.S. Department of Housing and Urban Development (HUD). The counsellor’s role is to make sure the borrower understands exactly what a reverse mortgage is. Counselling is always completed before the application is submitted.
Expected interest rate: The interest rate that is used to calculate the principal limit.
FHA: The Federal Housing Administration (FHA) is an agency within the U.S. Department of Housing and Urban Development that provides insurance to FHA-approved lenders for HECM loans.
HECM: Home equity conversion mortgage, or “HECM.” Another name for a reverse mortgage.
Initial interest rate: Also called “actual interest rate,” this is the interest rate first charged on the loan, beginning at closing.
Initial principal limit: The number of funds that you are eligible to receive from a reverse mortgage before closing costs are paid.
Maximum claim amount: The lesser of the home’s appraised value or the maximum loan limit that can be insured by FHA.
Mortgage insurance premium (MIP): The fee paid by a borrower to HUD for mortgage insurance. The insurance guarantees that the borrower will continue to receive their expected loan proceeds. An upfront MIP when the loan closes and an ongoing MIP is assessed throughout the life of the loan and will be added to the balance and remitted to HUD on a monthly basis.
Non-recourse: HECM loans include a feature that limits the amount that is owed by the borrower, heirs or estate when the loan becomes due and payable. This means that you will never owe more on the loan than a value of your home at the time of sale.
Non-borrowing spouse: This is a spouse who is not named on the loan. This spouse may be under the 62 year age limit to qualify for a reverse mortgage, or simply isn’t on the home title. Protections vary for non-borrowing spouses depending on circumstances.
Origination fee: The fee that you will pay to compensate the lender for processing your HECM loan. Be aware though that the lender can charge the greater of $2,500 or 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. But origination fees are also capped at $6,000.
Prepayment penalty: If you were to pay off your reverse mortgage loan early before you permanently vacated the property, you would not be charged a penalty to do so.
Principal limit: The total loan proceeds available at closing.
Servicing set aside: This is the estimated amount of funds that will be needed to service the reverse mortgage over the projected life of the loan. The amount is deducted from the initial principal limit and broken down into monthly payments that are automatically paid to the loan servicer each month.
Underwriting: Along with the financial assessment comes underwriting, which is when an underwriter takes a detailed look at your financial situation. Underwriting takes a look at your credit check, credit score, overall income and various other financial details.
Article Source: https://reverse.mortgage/meaning
Resource: https://www.hud.gov/topics/information_for_senior_citizens
If you should be over sixty-two years old, looking for money to pay off your current mortgage, finance home improvement, healthcare expenses or supplement your retirement income, you should think about a reverse mortgage.
You are able to look at this, particularly if you are intending in which to stay your property for a short while or borrow a minor amount.
He or she will explain the financial implications, expenses and alternatives of a HECM and should have the ability to allow you to compare the costs of different kinds of reverse mortgages.
The total amount you are able to borrow from the HECM or proprietary reverse mortgage depends upon some factors such as for instance you age, the type of mortgage, the appraised value of your property and the current interest rates.
Generally, the older you are, the more equity you've at home and the lesser your debt on it means the additional money you are able to get.Here are a few facts of a reverse mortgage that you need to be aware:1.
Whilst it is true that some reverse mortgages have fixed rates, most have variable rates linked with a financial index and they are likely to change with the conditions in the market.3.
