Reverse Mortgage Refinance Oregon
For a long time, a reverse mortgage had the stigma associated with it as being a loan of last resort. It was believed that only senior homeowners who were desperate got this type of loan. The good news is that this sort of thinking and mentality has changed significantly during the last 10 years. Today’s senior homeowners are seeing the opportunities and value a reverse loan provides, both financially and in quality of life.
What You Need To Know About Refinancing Into A Reverse Mortgage in Oregon
There are no mortgage payments required. Instead of making monthly payments to the lender, the payments are added to your loan balance. Over time, the loan balance increases and the equity in the home decreases.
There are no payments due until you vacate the property for 12 months due to illness, the property is sold or interest is transferred or the mortgagor passes away and there is no surviving spouse to maintain the property as their primary residence. Interest and fees will accrue as long as you continue to live in the house based upon the amount of money you borrow. You must continue to pay taxes, insurance and other homeownership costs.
You do not need to own your home free and clear in order to qualify for a reverse mortgage. The reverse loan can be used to pay off your current loan balance and pay off other debts as well.
The loan amounts you can qualify for are determined by the age of the youngest owner, interest rates and type of loan you choose. The older the youngest borrower, the higher the home value, the more money you can borrow.
Only one borrower needs to be 62 or older. There can be a non-borrowing spouse younger than 62. This is a recent change which allows the younger spouse the ability to continue to live in the home and retain ownership even after the primary borrower has moved out permanently (i.e. assisted living facility) or has passed away. The loan amounts are based off the youngest person associated with the loan and title.
The maximum claim for the FHA HECM loan is $625,500. What this means is that even if your home was worth $1,000,000, the loan would be based on a value of $625,500. There are other products available in the market that offer Jumbo reverse mortgages, but they are not widely available.
Interest Rates On A Reverse Mortgage
There are two options for interest rates on a reverse loan. You can choose either a fixed rate loan or a variable rate loan.
Fixed Rate – If you choose to go with a fixed rate loan you will get the loan proceeds as a lump sum at closing. The draw backs are you get access to less equity thus your loan amount is smaller. However, you do have the stability of a fixed interest rate.
Variable Rate – There are a few different options with the variable. The first being a monthly variable interest rate in which the interest rate changes on a monthly basis. The other options are interest rates that change once annually and once every 5 years.
There are caps on the variable interest rates. In other words they can only increase to a pre-specified interest rate. The most popular choice is the annual adjustment variable rate as it typically has the lowest cap rates.
Most people end up choosing either the fixed interest rate or the annual variable rate. I can show you your options in a side by side comparison so you can make an informed choice as to which option makes the most sense.
If you decide to go with a variable interest rate product, there are several options available to you that allow you to gain access and utilize your equity in different ways or in various combinations.
Line Of Credit – A line of credit allows you to draw equity from your home at any time. If you take, draws there are no payments required. Interest and mortgage insurance is added to the principal. As you take draws, your credit line shrinks and the principal amount owed grows. (Assuming you do not make any payments.) What makes these lines of credit unique, besides there are no payments due, is that the unused portion of the line of credit grows. It is not interest but growth of the actual credit line. The growth is based upon the index, margin and mortgage insurance.
Tenure Payments – These are payments that you will receive monthly for the rest of your life. The monthly payment depends on your age and value of your home.
Term Payments – Similar to tenure payments in that they are a fixed monthly payment. The difference being is that the payments end after a specified term. You can set up the payment for as long or as short of a term as you want.
Combination – You can do a combination of any of the above. For example you could have a portion of the equity set aside for a line of credit along with tenure payments.
Most residential property is covered under a reverse mortgage. These types of properties include single family homes, multifamily homes up to four units, manufactured homes on land manufactured after June of 1976 and HUD approved condos.
At least one person must be sixty two years old or older to qualify for the loan. There can be other people such as a spouse on the title to the property. The loan amounts will be based upon the age of the youngest person that will be on title.
The home does not need to be owned free and clear but any liens against the property must be paid off. Should there not be enough equity in the home in order to cover all of the outstanding liens against the property, borrowers may come in with cash to cover the difference.
The property must be your primary residence that you live in for at least 6 months out of the year.
As of 4/27/2015 borrowers will need to qualify for these loans through a financial assessment. The purpose of the assessment is to determine the willingness and ability of the borrower to pay the property taxes, insurance, HOA dues if applicable and upkeep of the home. It is estimated that this will only effect 10% of borrowers applying for a reverse mortgage.
One of the biggest problems lenders were facing with these types of programs is that about 10% of the borrowers would stop paying taxes and insurance. This puts the lenders at risk in a variety of ways. If the home burned down and there is no insurance coverage, there would certainly be a loss. If taxes are unpaid, the county could foreclose.
In order to combat these issues the financial assessment was implemented. This assessment looks at a variety of financial aspects of the borrower. The first thing reviewed is payment history on any debts, taxes and insurance. Then assets and income are reviewed.
Assuming you pass the assessment you will have the option of paying taxes and insurance on your own or setting up an escrow.
If you do not pass the assessment you will be required to set up a LESA, Life Expectancy Set Aside. In other words if you were 75 and your life expectancy is 87 you would be required to set aside 12 years of taxes and insurance in an escrow fund. The escrow fund will pay your taxes and insurance on your behalf. This escrow fund may be fully or partially funded.
This requirement can be seen as both a good thing and a bad thing.
• Your taxes and insurance will be taken care of for you.
• The escrow fund has growth and grows at the rate of the index, margin and mortgage insurance.
• There is the potential of passing on more equity in the home to your heirs because if you pass away before reaching or surpassing your life expectancy, the funds in the escrow account will go to your estate.
• Less money available to pay off a current loan or other debts.
• Less money for home improvements.
• Smaller tenure or fixed payments.
• Smaller line of credit.
If you have questions about getting a reverse mortgage refinance in Oregon give me a call today.
Call 541-773-3131 and just ask for Matt Allen, MLO-254296
I can answer questions you might have and even provide you with a free proposal.
I look forward to hearing from you soon.
I work with clients all over Oregon; Portland, Eugene, Medford, Bend, Roseburg, the coast, eastern Oregon, Salem, Springfield, Beaverton, Hillsboro, Klamath Falls and everywhere else in between.