Achieving Safe Financial Solutions Using a Home Equity Conversion Mortgage - CCMC

Achieving Safe Financial Solutions Using a Home Equity Conversion Mortgage (HECM) A Guide to HECM’s

What Is A Reverse Mortgage?

A reverse mortgage is a government insured home loan program that allows you to convert the equity in your home into usable cash. FHA terms this a Home Equity Conversion Mortgage “HECM�.

You do not give up title to your home.

You make no monthly mortgage payments as long as you occupy your home as your primary residence, maintain your property, and remain current on the property taxes, homeowners insurance and HOA dues.

No prepayment penalties.

Although the loan is not due and payable until you permanently move out of the home, it can be paid off at any point without additional fees or costs.

There is no time limit to how long the homeowner(s) may remain in the property. As long as one or both homeowners remain in the home as the primary residence and remain current on the property taxes, homeowners insurance and HOA dues, neither you nor your spouse will be required to leave or sell the home.

Your home does not need to be free and clear. Elimination of the current mortgage is one of the most common reasons seniors apply for a reverse mortgage.

You, or your heirs, retain 100% of the remaining equity upon the sale of the home.

Qualifications The qualifications are simple: •

The youngest homeowner must be 62 years of age or older

•

Minimal income or credit qualifications

Is It Safe?

The concept of a reverse mortgage originated in the mid 1960’s. In 1989, recognizing the incredible financial benefits this program offered, HUD was asked to take control of the program, eliminate some of the risks and insure the loans.

Those safeguards include…

• You must own the home or be purchasing a home that you will occupy as your primary residence • The home must meet standard FHA appraisal guidelines

When We Said Safe – We Meant It 1. In the best interest of the senior homeowner, FHA and HUD regulate: • Loan Amounts • Loan Terms • Loan Fees • The Maximum and Minimum Origination Fee

2. HUD mortgage insurance guarantees: Federal regulations mandate that your HECM is a non-recourse loan. This simply means that under no circumstances can you or any member of your family be held personally responsible for repayment of any part of the debt. When the home is sold by you or your heirs, if the sale proceeds are insufficient to repay the debt in full, the remaining balance due is forgiven.

A borrower’s loan proceeds are secure. HUD guarantees that the seniors’ funds are not at risk.

HUD also guarantees that there will be no interruptions in the loan servicing process.

Additional Safeguards 3. Counseling Once you have received basic HECM information, you must receive independent third party counseling from a HUD approved HECM counselor in order to obtain a reverse mortgage.

4. According to the IRS, Reverse Mortgage proceeds are not income and as a result…

• Proceeds are not subject to income tax (consult your local tax advisor) • No effect on Social Security • No effect on Medicare

5. Three Day Right of Rescission The rescission period is three business days after signing the loan documents, allowing the borrower(s) the opportunity to review their copy of the closing documents, ask questions and, if they choose, they may even cancel the transaction.

OK, Let’s Continue…

HECM Products Refinance – available as a HECM Fixed rate or Adjustable rate option (based on LIBOR index) to meet a variety of needs HECM Fixed rate option – rate remains fixed for life of loan HECM Adjustable rate option – based on the LIBOR index with multiple margins to choose from HECM for Purchase – also available as a HECM Fixed rate or Adjustable rate option

HECM Proceeds Options Tenure – provides equal monthly payments over the life of the loan Modified Tenure – combines line of credit with monthly payments for as long as one borrower remains in the home Term – provides the largest monthly payment. Borrowers determine the term of payment (5yrs, 10yrs, 18 yrs etc.)

Modified Term – combines line of credit with monthly payments for a fixed number of months Line of Credit – funds are drawn as needed from line of credit until exhausted. The amount of cash available grows larger each month until then (growth rate) Credit Line Growth Rate The credit line growth rate is based on the current note rate and loan product plus monthly mortgage insurance premium (MIP) The options above are only available with adjustable rate (LIBOR) products

Single Disbursement Lump Sum Option – all available funds received at disbursement (required for Fixed rate HECM). No additional funds available after loan closing.

You can also change payment options during the loan with the LIBOR - adjustable rate product

How Is The Reverse Mortgage Repaid?

Borrowers want to sell • Property is sold • HECM loan balance (principal plus accumulated interest and MIP) is repaid • Remaining equity goes to the existing borrower(s) or their heirs Borrowers want to sell and purchase a new home using a HECM for home purchase • Combine a new reverse mortgage with the proceeds from the sale above to purchase a new home One borrower passes away • Nothing changes – the loan is not due and payable until the surviving borrower moves or passes away Both borrowers pass away • HECM loan balance (principal plus accumulated interest and MIP) is repaid • Remaining equity goes to the heirs The heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, any remaining equity after the reverse mortgage is repaid is theirs to keep.

Copyright Š 2014. Cherry Creek Mortgage Co., Inc. NMLS #3001 dba 1st Reverse Mortgage USA in certain approved states. AZ: Licensing Mortgage Banker License #BK-0904024; CA: Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act; CO: Regulated by the Division of Real Estate; IL: Illinois Residential Mortgage Licensee LMB #0005759; KS: Kansas Licensed Mortgage Company, License SL-0000472; MN: This is not an offer to enter into an agreement. Any such offer may only be made in accordance with Minn. Stat. 47.206(3) & (4). OR: License Number ML-4807; TX: This office is licensed and examined by the Office of Consumer Credit Commissioner of the State of Texas. Loan products may not be available in all states. To check the license status of your mortgage broker, visit http:www.nmlsconsumeraccess.org. This promotional material is provided by Cherry Creek Mortgage Company (CCMC) and is not from or approved by the U.S. Dept. of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) or the Federal Government. CCMC is not endorsed by, acting on behalf of, or at the direction of HUD, the FHA or the Federal Government.