What Is A Reverse Mortgage?

Reverse mortgages (also known as Home Equity Conversion Mortgages, abbreviated HECM) are helping older residents on the Oregon Coast and Jackson County achieve greater financial security and enjoy their retirement years to the fullest.

The HECM FHA insured reverse mortgage can be used by senior homeowners age 62 and older to convert the equity in their home into a monthly streams of additional cash flow and/or a line of credit to be repaid when they no longer occupy the home.

The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association. To assist the homeowner in making an informed decision of whether this program meets their needs, they are required to receive consumer education and counseling by a HUD-approved HECM counselor.

HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM and provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, the homeowner should be able to make an independent, informed decision of whether this product will meet their needs.

Oregon Coast homeowners who meet the eligibility criteria can complete a reverse mortgage application by contacting a FHA-approved lending institution such as a bank, mortgage company, or savings and loan association.

Borrower Requirements For Getting A Reverse Mortgage In Oregon Coast OR:

  • Age 62 years of age or older
  • Own your property and have substantial equity
  • Occupy your property as primary residence
  • Participation in a consumer information session given by an approved HECM counselor

Mortgage Amount Based On:

  • Age of the youngest borrower
  • Current interest rate
  • Lesser of appraised value or the FHA insurance limit

Financial Requirements:

  • No income or credit qualifications are required of the borrower
  • No repayment as long as the property is the primary residence
  • Closing costs may be financed in the mortgage

Property Requirements:

  • Single family home or 1-4 unit home with one unit occupied by the borrower
  • HUD-approved condominiums
  • Manufactured homes ; fee simple
  • Meet FHA property standards and flood requirements

How the Home Equity Conversion Mortgage Program Works For Oregon Coast Homeowners

Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining, and are currently living in the home are eligible to participate in HUD’s reverse mortgage program.

The program allows homeowners to borrow against the equity in their homes. Homeowners can select from five payment plans:

  1. Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
  2. Term – equal monthly payments for a fixed period of months selected.
  3. Line of Credit – unscheduled payments or in installments, at times and in amount of borrower’s choosing until the line of credit is exhausted.
  4. Modified Tenure – combination of line of credit with monthly payments for as long as the borrower remains in the home.
  5. Modified Term – combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

Homeowners whose circumstances change can restructure their payment options for a nominal fee of $20. Fee may vary depending on Lender.

Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the home is the borrower’s principal residence. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors. You can never owe more than your home’s value.

If the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. HUD’s Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage. This is the beauty of the HUD™ FHA guarantee.

The amount a homeowner can borrow depends on their age, the current interest rate, other loan fees and the appraised value of their home or FHA ‘s mortgage limits for their area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

For example, based on a loan with an interest rates of approximately 9 percent, and a home qualifying for $100,000, a 65-year-old could borrow up to 22 percent of the home’s value; a 75-year-old could borrow up to 41 percent of the home’s value; and, an 85-year-old could borrow up to 58 percent of the home’s value. The percentages do not include closing costs because these charges can vary.

There are no asset or income limitations on borrowers receiving HUD’s reverse mortgages.

There are also no limits on the value of homes qualifying for a HUD reverse mortgage. The value of the home will be determined by an appraisal. However, the amount that may be borrowed is derived from the lower of the appraisal amount or FHA mortgage limit, which is $417,000. For  Alaska, Guam, Hawaii and the Virgin Islands,  the FHA mortgage limits may be adjusted to up to 115 percent of the area median price, or $625,500, whichever is less.

HUD collects funds from insurance premiums charged to the homeowners who receive HECM mortgages. Homeowners are charged an upfront insurance premium which is 2 percent of the maximum claim amount that may be borrowed plus a .5 percent annual premium.