The home keeper mortgage is the Federal National Mortgage Association (Fannie Mae) reverse mortgage offering. Fannie Mae does not make the loan, but will purchase the mortgage in the secondary market (provided the originating lender follows certain guidelines). To qualify, you must be at least 62 years old and have a free and clear home or a low mortgage with substantial equity. The maximum amount you can borrow is generally higher than the HECM and is based on average home prices, rather than specific areas. The interest rate on the adjustable loan uses a CD (certificate of deposit) index rather than the Treasury Bill index used by the HECM. The CD rate will move at a slower pace and will benefit the borrower if rates rise. There is no personal liability on the part of the borrower or the borrower's estate. Only the mortgaged property can be used for repayment, unless the borrower or borrower's heirs choose to repay from other sources.
In other words, if there is still equity in the home, the heirs may wish to sell the property or refinance it and pay off the reverse mortgage loan. Like other reverse mortgage programs, loan origination, closing costs, and monthly service fees can all be financed. Counseling is also required by an approved counselor. The payment options include tenure, set term, or line of credit. The line of credit option is not available in Texas.
The biggest disadvantage of the home keeper is that there is no automatic increase in the amount you may borrow. Unless you choose tenure, you can borrow only up to the original amount for which you qualified. By contrast, the HECM loan amount increases each year. As discussed in the previous example, if you selected the line of credit option, qualified for a US Dollars 100,000 loan under an HECM, and borrowed nothing for the first year, your maximum loan amount would rise to about US Dollars 106,000. The same scenario under a home keeper would still have a loan amount after one year at US Dollars 100,000.
The advantage to the home keeper is the higher initial amount you can borrow. This may provide even more financial security in certain circumstances. As the next question and answer shows, borrowing the entire amount at closing and buying an annuity may be your best option.
A common use for those who seek a reverse mortgage is to take the proceeds in a lump sum and use it to purchase an annuity. An annuity is a product you buy from an insurance company that pays you a sum of money for an agreed-upon term or for life. It acts in the same way as a reverse mortgage that pays a monthly amount. However, an annuity may be a better financial solution.
Example: Your goal is to get the largest monthly payment possible for the rest of your life. You are not sure how long you will want or be able to occupy your home. You are thinking that maybe in five years or so, you might want to move to an apartment or a senior care facility.
You can get a reverse mortgage tenure loan that will guarantee you monthly income for life. The problem is, you must occupy your home for life to get the benefit. If you move in five years, you will then have to repay the loan. How do you get the maximum benefit from your reverse mortgage without having to worry about repayment?
You can take the total amount of your reverse mortgage entitlement at closing and buy a lifetime annuity. With this comes two advantages. First, the annuity will sometimes pay a larger monthly amount than the tenure reverse mortgage. This achieves the first part of your goal, which was to get the highest monthly income available.
The second part of your goal was to have this income continue for your lifetime. What happens in five years when you move from your home? The money you borrowed on the reverse mortgage has to be repaid. If you sell your home to do this, you get the difference between the sale proceeds and the repayment amount. If there is nothing left or the home sells for less than what you owe, you get nothing. You also owe nothing if the home sells for less than what you owe because the reverse mortgage lender cannot look to you personally for repayment. However, if you have taken the money and purchased an annuity, you keep getting your payments for as long as you live, regardless of where you live. You now have your monthly payment without the burden of the reverse mortgage.
This combination of reverse mortgage borrowing and annuity buying is ideal for some people.
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Note: This article was sent to us by: Victor Campbell at 05062010
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