Reverse Mortgage Senior Safeguards
The FHA has mandated protection for the Reverse Mortgages to protect senior citizens.
- Independent Counseling
. Before a reverse mortgage application can be processed, the prospective borrower must first meet with an independent counselor. HUD oversees a network of counselors whose job is to review the transaction, answer questions, and suggest alternative options.
- Standard Capped Interest Rates
- FHA HECM: You can choose either a fixed interest rate or a rate that adjusts monthly or annually (the borrower chooses). Rates are calculated on one of two indexes--the 1-year U.S. Treasury Constant Maturity Rate published weekly by the Federal Reserve, or the London Interbank Offered Rate (LIBOR)--plus a margin charged by the lender. Both the monthly and annually adjusted rates have lifetime caps.
- Conventional reverse mortgages. Most conventional programs are based on the LIBOR index, plus a margin charged by the lender.
- Limitation on Fees. Origination fees are capped and may be financed as part of the reverse mortgage. This means a senior incurs very little out-of-pocket expense to get a reverse mortgage.
- Advance Disclosure. Make seniors fully aware of the cost incurred in obtaining a reverse mortgage. Under the FHA HECM program, the Total Annual Loan Cost, or TALC disclosure, required by the Federal Reserve Board displays the total transaction costs over the projected life of the loan.
- No Maturity Date. There are no required payments and a lifetime right to occupy. Making a reverse mortgage a safer alternative for protection against unforeseen or unanticipated future circumstances.
- No Prepayment Penalty. The loan is not due and payable until the senior permanently moves out of the home, however it can be paid-off at any point before that without additional charges.
- 3 day right of recession. Three days after the loan closes you still have the right to cancel.
- Asset Protection. The reverse mortgage is a non-recourse loan. Title to the home always remains with the borrower. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but never more than the value of the house. Any remaining value belongs to the homeowner or the heirs to the estate