14 Types & Options

A Reverse Mortgage is used for one of two different types of transactions.

1) Financing your current home.  This usage is the typical type of Reverse Mortgage transaction and is most often what is generally considered and thought to be a Reverse Mortgage.

2) Reverse for Purchase. A lesser known usage is financing the purchase of a new home the senior clients intend to move into.  Few home buyers (or their real estate agents) realize that this is even an option.  For Realtors and home buyers, we have dedicated a page to this specialized use of financing.

Regardless of Refinance or Purchase, there are three Reverse Mortgage Options to choose from.

Once we meet and have a clear understanding of what your goals are, you will receive guidance as to which option we feel is most appropriate. Of course you are the decision maker, but we want to feel comfortable that you are making an educated and well thought out decision as to which option best suits your needs. Each option has its own unique characteristics and is summarized below.

Reverse Mortgage Option # 1 – HECM Adjustable

The Adjustable Rate Mortgage (ARM) has been around since FHA took control of the Reverse Mortgage program in 1988.  It is currently tied to the LIBOR index and is updated monthly.  A “margin” is added to the LIBOR index and that creates the annual interest rate that is charged on the outstanding balance.  The ARM option offers clients the most flexibility.

1.     The senior can receive monthly income,

2.     The senior can take a disbursement at the time of closing,

3.     The senior can have the funds available in the form of a Line of Credit (LOC) to use on an as needed basis, or

4.     The senior can have a combination of any of the above!

Additionally, should a client’s needs change in the future, the set-up of the loan can be changed at any time for a nominal fee (currently the charge is about $30 to make a change).  Few people actually realize how flexible your Reverse Mortgage options really are after closing.  No other mortgage financing is as flexible as the HECM Reverse program.

Finally, you should know that any unused portion of funds (the money that is available but hasn’t been taken yet) actually appreciates at 1.25% HIGHER than the rate that is being charged on the used portion.  Under certain circumstances, this can be used as an excellent estate planning tool and could leave a bigger estate to your heirs than just the value of the home.  Essentially, over time it is likely that the Line of Credit is worth more than the value of the home itself!

This concept is worth repeating.  When administered properly, the line of credit can be hundreds of thousands of dollars more valuable than the home.  Over time the bigger asset is not the house, but rather the LOC.  We have a page dedicated to Financial Planning Strategies that utilize the Reverse Mortgage product and encourage you to explore some advanced concepts. New Mexico Reverse Mortgage will work with you to discuss real numbers. If you have a trusted Financial Advisor or an Estate Planner, we’d like to meet with them to share some strategies they likely have not ever considered that can greatly enhance your financial health and security.  Remember, the mortgage is insured by the government and the LOC has a guaranteed growth rate.

Reverse Mortgage Option # 2 – HECM Fixed

The Fixed Rate program was created in 2008 and is not as flexible at the ARM, but it does offer an interest rate that will never change.  With the Fixed program, the only option for disbursement of funds is “Lump Sum”. This means that at closing, the entire lump of money is disbursed with no option for future disbursements.  The Fixed Rate is often used when the purpose of the money is already known.  As a simple example: If the Principle Limit (or Loan Size) is $200,000  and the senior has a $150,000 mortgage lien that gets paid off thru the closing, then the senior would have $50,000 left over to save or spend however they like.

Reverse Mortgage Option # 3 – HECM Hybrid

This is a relatively new option that was first available in 2014.  It has both a Fixed Rate feature and the Adjustable Rate feature.  Using the above example, the portion that was immediately used at closing to pay off the $150,000 lien would be fixed.  The remaining $50,000 would not be disbursed to the borrower at time of closing, but would remain available to the senior in the form of a Line of Credit.  This is an excellent choice of products and we are expecting it to gain in popularity as it becomes more widely known to consumers.

Summary

Each program and terms are modified for your specific needs.  Your New Mexico Reverse Mortgage expert will walk you through every step of the process in order to qualify, answer all of your questions, and help you select the option that best suits your needs.

*What option that makes sense for one senior does not mean that it is the best option for another senior. Every client and scenario is unique, and needs to be treated as such.  So, we listen and will create an individual report for you.