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Credit Lines FREEZE, But Not For Reverse Mortgages

Cliff Auerswald's picture

The “comfortable income” many seniors thought they had planned is often eroded by rising costs and incomes which don’t keep pace with those costs. Are there any guarantees anymore...

Life doesn’t hold too many real guarantees anymore. Seniors work hard their whole lives and expect to receive a pension and often those pension funds aren’t available or the company closes and the individual is left looking for work late in life with no pension at all, starting over. Borrowers go to their local banks and get Home Equity Lines of Credit so that they will have cash available when they need it, but then banks freeze those lines due to falling values or bank liquidity issues and if you are a senior borrower on a fixed income, you may not qualify for a new loan. The “comfortable income” many seniors thought they had planned is often eroded by rising costs and incomes which don’t keep pace with those costs. Are there any guarantees anymore?

For those senior borrowers who have chosen to obtain a government-insured Home Equity Conversion Mortgage (HECM or “Heck-um”), there are some guarantees in which they can find comfort. The HECM is also known as a reverse mortgage because it operates in reverse of a normal mortgage. Instead of a falling debt, rising equity loan which is what you get when you borrow money, make monthly payments and then pay back the principal, the reverse mortgage allows you to receive money from your property without making any monthly payments so your principal balance increases. On the HECM loan, you also pay mortgage insurance to the Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD). The insurance that the borrower paid on this loan to the government insures that the borrower will always receive the funds owed to them under the terms of their reverse mortgage, on time, no matter what happens to their lender.

This is particularly important to borrowers who choose the Line of Credit option or the Monthly Payment Options (the Term or Tenure) to receive their reverse mortgage funds. Borrowers can take a lump sum when they close their reverse mortgage, can take a line of credit to be drawn when they desire or need, can take monthly payments (for a specified period or for the rest of their life) or a combination of any of the three options above – the complete HUD requirements. The government insurance guarantees that as long as the borrowers follow the terms of their reverse mortgage documents (live in the property as their primary residence, maintain the home in a reasonable manner and pay the taxes and insurance are the main provisions), the borrowers are guaranteed by the government to always have access to their funds.

Some of the other guarantees that are given to senior borrowers by the government-insured HECM are that if you are aged 62 and over you cannot be turned down for credit other than delinquencies on federal debt or other debts which adversely affect the title of your property. You are guaranteed that you will not be turned down for insufficient income issues. You are guaranteed that no matter how much you receive over the years or what happens to property values, you or your heirs will never owe more than your property is worth. You are guaranteed that YOU own your property, not the bank, and retain all rights of ownership including deciding what will happen to your home upon your demise.

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 Ext. 1 - All Reverse Mortgage Company

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