Connecticut reverse mortgages

Overview
Through a U.S. government sponsored program, a senior can obtain a loan for approximately 50%-60% of the equity in their home at the low interest rate of 3-4%...and the senior never has to repay the loan in their life time. The only requirement is that the senior must be 62 or older. That's it–no other requirements. Typically, seniors who do a reverse mortgage get $50,000 - $100,000 cash today and they always retain 100% ownership (and the future appreciation) in the home.

For a senior who's home currently has a mortgage on it, a reverse mortgage can replace the existing loan--with the benefit being that the monthly payment on the existing loan goes away. Additionally, it's possible the senior will also receive a substantial amount of cash as well.

Repayment
The loan is not due and payable until the borrower no longer occupies the home as a principal residence i.e.- the last surviving borrower sells, moves out permanently, or passes away.

Who Qualifies
You must be at least 62 and own your own home or condominium in order to qualify for a reverse mortgage. There are no income or credit requirements to qualify. Based on the amount of benefit which you qualify for, you may be eligible for a reverse mortgage even if you still owe money on your first mortgage.

Types of Reverse Mortgages
There are two types of reverse mortgage loan products are the FHA, HECM (Home Equity Conversion Mortgage), and Fannie Mae Home Keeper. Another benefit of these loans is that they are "non recourse" which means that no matter how high the loan balance grows, the borrower or their heirs never owe more than the home's market value.

FHA - HECM (Home Equity Conversion Mortgage)
This plan provides cash, a line of credit* or monthly income (or any combination) for a fixed term or as long as you live in your home.

Home Keeper by Fannie Mae
This plan provides cash, a line of credit* or monthly income (or any combination) for as long as you live in your home.

Generally takes 30 days to complete the loan process

Use of Proceeds
The proceeds from a reverse mortgage can be used for anything: daily living expenses; home repairs and home improvements; medical bills and prescription; pay-off of existing debts; education; travel; long-term health care; retirement and estate tax planning; and other needs you may have.

Options For Money Received
The proceeds from a reverse mortgage are available as a lump sum, fixed monthly payments for as long as you live in the property, or a combination of both options.

Amount you can Receive
The amount of benefit that you will qualify for will depend on your age at the time you apply for the loan, the type of reverse mortgage you choose, the value of your home, and current interest rates.. As a general rule, the older you are and the greater your equity, the larger the reverse mortgage benefit will be.

Costs of a Reverse Mortgage
The costs associated in obtaining a reverse mortgage are similar to those of a conventional mortgage, such as the origination fee, appraisal and inspection fees, title policy, mortgage insurance and other normal closing costs. With a reverse mortgage, all of these costs can be financed as part of the mortgage.

Required HUD Counseling
You must first meet with an independent reverse mortgage counselor before applying for a reverse mortgage. The counselor's job is to educate you about reverse mortgages, to inform you about other alternative options available to you given your situation, and to assist you in determining which particular reverse mortgage product would best fit your needs if you elect to get a reverse mortgage. This counseling session is at no cost to the borrower and can be done in person or over telephone.

Commonly Asked Questions

1) Why is it better to do a reverse mortgage versus simply refinance the house with a traditional mortgage?
Two reasons a reverse mortgage is better. First, with a reverse mortgage the senior doesn't have to make monthly mortgage payments. With a traditional mortgage, monthly payments are required. Remember, with a reverse mortgage the principal and interest is not repaid until the borrower dies. If a married couple does a reverse mortgage, both must die (or permanently move out of the house) before the reverse mortgage must be repaid.

The second reason a reverse mortgage is better is because there is no “income qualifying” with a reverse mortgage. If the person is 62 or older, he/she qualifies irrespective of his/her income. With a traditional mortgage, a person must “qualify” from an income standpoint to support the borrower's ability to make the monthly mortgage payments.

2) Could you give me an example of how a reverse mortgage works?
The U.S. Government will loan you approximately 50%-60% of the value of your home at the low interest rate of 3-4% and you never have to repay the loan in your life time. The only requirement is that you must be 62 or older and own your own home. Here's an example: Let's say you are 65 and own a house with a value of $180,000 with an existing mortgage of $23,000. That existing mortgage has payments of $600 a month. If you get a reverse mortgage, you would receive the following:

a) $60,000 cash: You would receive about $60,000 in cash that would be paid to you immediately or in monthly payments.

b) $600 a month existing mortgage payment goes away: You no longer have to pay that $600 a month payment because the existing $23,000 mortgage is paid off when you get a reverse mortgage.

This is accomplished by the U.S. Government loaning you 50% of the value of your home ($90,000) via a reverse mortgage. With the $90,000, you would then pay off the existing $23,000 mortgage on the house with the balance (after closing costs) going to you in cash. As to repayment of the reverse mortgage loan, no repayment is required during your life time as long as you continue to live in your home. Upon your death, that's when the reverse mortgage (principal and interest) must be paid by your estate.

You get cash today and don't have to repay that cash in your life time. That's what makes a reverse mortgage so unique. When the loan is repaid, your heirs are charged the low interest rate of 3-4%. The rate is low because the U.S. Government wants to be sure seniors and their heirs are not taken advantage of. Further, you retain 100% ownership in the home and you and your heirs get all the future appreciation in value of your home. And, best of all, the only requirement is that the homeowner simply must be 62 or older. That's it; there are not other requirements.

3) Are fixed rate loans available?
Not at this time. The adjustable rate mortgage (ARM) features annual or monthly rate adjustments. The rate is tied to the one year T-Bill. The actual rate on the loan is 1.5%-2.1% above the 1 year T-Bill rate. Interest is paid to the lender only when the home is sold or the mortgage is paid off. Normally interest rates on reverse mortgages are lower than home mortgage rates and equity loan rates.

4) Will I have to pay any fees out of pocket to obtain a reverse mortgage?
No. But there are fees to get a reverse mortgage and they will be added to your loan balance so that you do not have to pay them at closing. You will pay a loan origination fee of 2% of your home's FHA appraised value or the FHA maximum loan limit in your country (whichever is lower), an appraisal fee and other ordinary closing costs, and the FHA mortgage insurance premium of 2%. A monthly servicing fee will also be charged and will be financed into the loan balance so you will not have to pay it in cash. There are no out-of-pocket costs; all fees are similar to a traditional home mortgage loan. There are no unusual fees because it's a reverse mortgage.

5) Are the Closing Costs and Fees in a reverse mortgage high?
Conclusion: No, because they are paid with “future dollars” in typically 15-20 years, not with today's dollars. There are no out of pocket, up front fees paid by the borrower in a reverse mortgage transaction.
Note: If the reverse mortgage loan is not anticipated to be kept long term and rather is anticipated to be paid off in 3-5 years, it's recommended that a reverse mortgage not be taken out.

Supporting facts: The fees and closing costs on a reverse mortgage typically run $6,000-$9,000 depending on the size of the loan. The common misconception is that these fees are high. If they were paid up front in today's dollars, they would be high. But the reality is they are paid when the loan is paid off (in maybe 15-20 years) and therefore are paid with “future dollars”. Remember, a dollar paid in 15 years is worth much less than a dollar today. Understanding that fact is critical to adequately assess the fees associated with a reverse mortgage. The following four points should also be considered.

a) Fees same as any mortgage loan: Like any mortgage loan, it's an important legal transaction and title insurance, mortgage insurance and an appraisal must be obtained. The lender must also receive the standard loan origination fee and legal documents must be prepared. There are a lot of things involved and the closing costs are the same whether the loan is outstanding for 5 years or 15 years. But if the loan is held long term, the fees are spread out over more years thereby reducing their effective cost. Further, the fees on a reverse mortgage are actually less than a traditional mortgage because the U.S. Government, through H.U.D., caps all fees associated with reverse mortgages in order to protect seniors.

b) H.U.D. disclosure form–no high fees allowed: Because it's a government insured loan and because the U.S. Government is particularly sensitive to seniors being taken advantage of via high fees in a reverse mortgage transaction, the closing cost and fees are highly regulated and capped by H.U.D. See copy of Consumer Protection Measures Against Excessive Fees which must be signed in every reverse mortgage transaction. This document protects the consumer from high fees in a reverse mortgage transaction.

c) All closing costs and fees paid at end with future dollars, not at beginning with today's dollars. The significance of this is huge! When you realize that the fees are paid at the end in maybe 15-20 years when the loan is paid off and not paid in today's dollars, one can appreciate that the fees and expenses are reasonable. If one were to treat the $6,000-$9,000 in closing expenses paid at the end as just another form of interest, it raises the “effective” interest rate to around 4% from the stated interest rate on the loan of just under 3%. Further, the actual interest rate is generally lower on a reserve mortgage than it is on other government insured loans, therefore the fees and expenses on a reverse mortgage are further offset by the lower interest rate on the loan.

d) Example–Paying closing costs at end of 15 years versus today: Let's look at how interest on the loan works. Let's assume the interest rate on the loan is 3%, clearly a very attractive rate for the borrower. On a $100,000 loan over 15 years, that's $3,000 a year or $45,000 over 15 years. If you would be required to pay it at the inception of the loan, you just wouldn't do it because it would seem unfair. But when the fees are paid at the end of 15 years, once again that 3% interest seems reasonable and fair. The determining factor as to whether the fees are high or not, is the timing of when the fees are paid. The same is true with the closing costs. They seem high when looking at them in total but one can appreciate that they aren't so high when one grasps the fact that they are paid with future dollars at the end.

6) Are there any restrictions on the use of the money I will receive?
What if I just want to buy a new car or take a trip each year to visit my grandchildren?
It is your money and how you spend it is completely up to you!

7) Will I have to sell or vacate my home if the money I owed on the loan exceeds the value of my home?
Absolutely not! As long as you continue to live in your home as your primary residence, you will never be asked to sell or move out of your home.

8) Will my heirs owe anything to the mortgage lender?
Your heirs may either repay the loan or sell the property at it's “fair market value”. No additional financial claims may be made against your heirs or estate because the reverse mortgage loan is non-recourse, which means that if the loan amount is greater than the home's value, any outstanding debt balance will be forgiven.

9) If my home's value appreciates during the mortgage term of a reverse mortgage, who will be entitled to that money?
Under the terms of the reverse mortgage, you are legally required to pay back only the outstanding balance of your loan. You or your heirs are entitled to any and all appreciation in the value of your home that exceeds the loan balance.

10) How much can I borrow?
The maximum amount that can be borrowed is based on a H.U.D. formula that factors in the age of the youngest borrower, the average expected interest rate, the anticipated rate of your home's appreciation, and the current value of your home within the FHA insured limits for your area. Upon request, a free computer printout is available for your home and the amount of payment you're now entitled to. Typically a person can borrow about, for general purposes, 50% -60% of the value of their home.

11) What's the highest the interest rate can be on a reverse mortgage?
The rate on the loan fluxuates with the 1 year T-Bill rate, but there are caps on how high the loan rate can go. You have a choice as to whether you want the loan rate to adjust every month or once a year. Your decision on this affects the interest rate cap on the loan.
Type of loan Interest rate cap
Option 1-interest rate on loan adjusts monthly- 10% cap over the life of the loan

Option 2-interest rate on loan adjusts yearly- Annual increases are limited to 2%
a year and 5% over the life of the loan
Note: If you choose to let the loan adjust monthly you get more money than you would if you chose to let it adjust yearly. The negative is that you have a 10% cap versus a 5% cap.

Note-a little perspective : The 1year t-bill rate used in reverse mortgages is closely tied to the 1yr C.D. rate. In considering one's exposure to rising interest rate, consider the last time C.D. rates were over 6-7%

12) Will reverse mortgage payments affect my Social Security or Medicare benefits?
Moneys received will not affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act.

13) What if I decide to sell my home?
If you choose to sell your home, the outstanding reverse mortgage loan balance will have to be paid at closing. You or your estate will receive any proceeds exceeding the loan balance.

14) What appreciation or rise in my home's value should I conservatively anticipate over the years of a reverse mortgage?
A H.U.D. and FHA formula is 4% each year.

15) How safe and secure are reverse mortgages?
Reverse mortgages are sponsored by the U.S. Government through H.U.D. The fees and expenses that can be charged on a reverse mortgage are tightly regulated by H.U.D. in order to protect the senior.

16) Why haven't I heard more of reverse mortgages if indeed the benefit is so attractive?
The U.S. Government does not advertise benefit programs. The media, approved lenders of the program and word of mouth are the primary communication sources of reverse mortgages. The reason the traditional mortgage industry has not pushed reverse mortgages is because the fees are less than traditional mortgages due to the U.S. government's caps on reverse mortgage fees. These caps are put in place by the government to protect seniors.

17) How common are reverse mortgages throughout the U.S.A. ?
Some states in the U.S. have had the Reverse Mortgage Program for years; For the last several years, volume of reverse mortgages has been up significantly each year. Reverse mortgages are becoming more well known.

18) Will a reverse mortgage hurt my heirs or children; “I always wanted the house left for their benefits”?
Often heirs and children want the senior citizen to have the best quality of life available. Heirs and children will still benefit from remaining home equity and future home equity and rise in value of your home. Most seniors don't want to be a burden to their children or heirs; a reverse mortgage gives financial independence and control to the senior. The heir or children of the senior continues to be the best referral of a Reverse Mortgage Program

19) How long does the reverse mortgage process take? When should I receive my money?
Normally, 30 to 45 days.

20) Who is eligible for a reverse mortgage?
The only requirement is that the homeowner must be 62 or older. Regarding the home itself, the only requirement is that existing mortgages (if any) cannot exceed about 50% -60% of the value of the home.