Frequently Asked Questions

The Home Equity Conversation Mortgage (HECM) has existed since 1961, and few people understand its safeguards and advantages. Reverse mortgage laws have changed dramatically the past few years, making this retirement strategy one of the best ways to age in place today.

A reverse mortgage does not make sense for everyone, even if they could use it responsibly. We've compiled a common list of questions we've answered so many times.

If you don't find a question and answer you're seeking, reach out to us today so we can help.

Most Frequently Asked Questions

Why would anyone want a new mortgage at this time of life?

This is the single most important question we answer. So it's our longest and most careful response. There are many things to factor and consider.

First, a reverse mortgage is not right for just anyone, even if they could use it. So we are careful to learn about the lifestyle and needs of each client. Often we feel like doctors. Many clients might benefit by a prescription, but each body reacts differently. So our diagnosis and prescription is very different for every client.

If you have existing debts and your sources of retirement income do not allow for unplanned expenses and surprises, which we all have, then a reverse mortgage is a no-brainer. If you own your home without debt, and know with certainty that you'll never need any additional sources of liquidity, then, while a reverse mortgage still has merit for smart financial planning strategy, if you still have a pit in your stomach, we discourage it because it's just not necessary.

Our rule of thumb is this: If the client will enjoy a better lifestyle, AND would sleep better with a reverse mortgage, then we encourage it in almost all cases.

CONSIDER THIS: Your home is not really an asset to YOU, and it is an asset with accumulated expenses to you and your heirs. Few people consider that their home is not really "owned" because to retain it you still have increasing taxes, insurance and maintenance expenses to cover. In reality, it is remains an expensive asset to those who do not have significant assets elsewhere. Income does not increase with age; living expenses certainly do.

Many homeowners spend 30 years paying a mortgage payment, accumulating inaccessible wealth in a home that still costs money after the mortgage is paid. Property taxes and homeowners insurance increase annually. Homes need maintanence as they age. Water heaters break. Carpet unravels. Pipes freeze. Yard maintenance increases with growth.

So why use your precious retirement income to pay for the home? Use that for an actual retirement lifestyle. Let your home pay for itself. Your heirs will sleep better, too. A reverse mortgage can provide benefits to any homeowner who knows how to use it responsibly. It relieves many of a current mortgage, affords some additional income, and it offers diverse porfolio strategies to those who use it as a line of credit. Since we try to work closely with your financial planner, your eyes will be opened to opportunity. That's why our focus on education is so important.

Most of our clients are excited by the ways we show them how to think about a HECM loan as it applies to strategy. However, there are still many we feel aren't good candidates, even if it could benefit them. For clients who do not have a good history of managing credit, but could benefit by a reverse mortgage, we strongly advise participation of the family, a retirement planner, and even an attorney.

Our role is to provide you exhaustive education so that you will make a decision that lets you sleep well at night.

What does it cost?

There are a couple of ways we answer this:

  • First, it costs nothing to get educated. We'll provide you all the time you need to learn about the program and to work with your family and retirement planner.

  • Once you and your Loan Advisor determine it's worth pursuing further, there are two non-refundable third party fees you'll pay whether you end up closing a loan or not. You'll pay HUD-Approved Counseling Agency anywhere from $100-$150, and for an appraisal of your home that can range from $450 and higher depending on the state and home size. These are paid outside of closing and required to determine eligibility. 

  • Closing Costs. When you close your loan, we may include an Origination Fee. Sometimes we waive that fee and help clients pay for their closing costs where it is necessary. We do our best to structure each loan for your benefit.

    Other closing costs include the FHA Initial Mortgage Insurance Premium (IMIP), Title Insurance, and Government Recording and Transfer Charges. These are all typical of any mortgage. The largest fee is usually the IMIP. Consider IMIP the cost to enjoy the benefits of a mortgage you do not have to pay back as long as you meet the terms of the loan, and the great benefit of never owing more than the lesser of the value of the home or the loan. IMIP is worth the benefit. IMIP is 0.5% of the value of the home when your loan balance at closing is less than 60% of the Principal Limit allowed. If after paying all mandatory obligations, such as existing mortgages or liens, the balance exceeds 60%, IMIP is 2.5% of the value of the home.

    The typical total fees on a reverse mortgage are $8,000 to $10,000. For loans that start out with a higher balance because it paid off existing liens and debts at closing have much higher IMIP, so the costs are even higher. 

Consider that this really isn't a cost. It's an investment paid through the asset. This sounds wrong, but it's actually true. In most cases the costs to close a reverse mortgage are paid through the loan at closing.

What does a reverse mortgage really cost then? It deducts some equity from the home. If you closed a HECM and three years later decided to sell the home, you may have lost $10,000 in equity. However, if you closed a HECM because you really needed that income or cash at the time, then that small equity deduction is not even a consideration. You did it when you needed it, and $10,000 in equity is not even a thought.

In summary, there are no costs to get educated. There are around $650 in costs to qualify yourself and the property. The final closing costs are paid out of the equity of the home.

We strongly recommend to our clients that they focus on their current needs, lifestyle, and future. If a reverse mortgage affords you a better lifestyle and greater peace of mind, then it is probably worth it!

What Are the Risks?

There are two risks to consider:

  1. RISK #1: You are required to continue to pay your property taxes and insurance and, where applicable, HOA dues. You are also required to maintain the property so that it's value remains.

    Whether you have a mortgage or not, you are required to pay taxes and insurance and to maintain your property. If you stop paying taxes, it doesn't matter if you owned the home outright. The State will lien the property and foreclose. If you stop paying HOA dues, an HOA can lien the property and foreclose.

    To reduce that risk we conduct a Financial Assessment to evaluate your capacity and ability to continue making these payments through your life expectancy.  For those who do not meet these requirements, monies are set aside in the loan, like an escrow for taxes and insurance on a forward mortgage, to make sure those are paid. If you do not need the set-aside, you may still request it so you don't ever worry about. It protects you from yourself.  

  2. RISK #2: Drawing all of your available funds too soon, for unecessary wants

    This does not apply so much for those who pay off an existing mortgage with the entire available funds of the loan.  In that case, your goal to eliminate a payment to continue to age in place and afford to live far outweigh the risk of loss of equity. 

    For those who have a line of credit remaining, while you are allowed to use your funds for anything, if you use it irresponsibly to buy things you do not need, you risk accruing interest on a larger balance and eating up all the equity in the home sooner than you would like.

    The good news is this:  A HECM loan is 40-60% of the current value of the home, depending on age, and you are only allowed to access 60% of that amount during the first year.  Let's use an example of a 66 year old woman with a $300,000 home value.  Based on today's rates (June 27, 2015) she would qualify for $164,700.  If she only had to pay the closing costs through the loan, and started with the maximum line of credit, she could only draw up to $91,532 the first year, then the additional $65,266 the following year. 

    Suppose she feels she just won the lottery and goes and blows all available funds the first year, and the rest the second year.  The question is how long will it take before the future property value, minus the loan balance, has no positive balance? Remember, she will never owe more than the lesser of 95% of the appraised value or the loan balance at the time of sale. 

    In this case by the time she is 70, her balance, if rates are consistent at 5%, would be $218,987.  The property value at 4% annual value increase would be $364,995. So if she sold the home, she would have enjoyed the $156,798 she already withdrew the first two years, plus the equity at sale of $146,007. So one might consider that she still enjoyed $302,805 in cash benefit within 5 years when her home started at a value of $300,000.

    Had she not used a HECM loan at all, she might have sold it at $364,995.  So in this scenario, by drawing all her money up front, she lost a potential $40,291 in equity ($62,190 less 6% realtor fees).  If she planned to live in the home until she died, she really lost nothing in benefit. Instead, she enjoyed the use of funds while living and improved her lifestyle, so it's not a consideration.  In that scenario, if the property continued to increase in value at 4%, and she lived until age 90, her heirs would only enjoy $60,644 in equity at the sale, instead of $768,991 less realtor fees, and costs to ready it to sell. 

    In the case of the heirs, the question is whether their mother needed the loan when she got it, and was able to live a better lifestyle with HER asset, which she earned over her lifetime.

What are the Terms?

Borrowers much maintain the home as a principal residence, pay property taxes and homeowner's insurance, and continue to maintain the property to meet the terms of the loan. Paying property taxes and insurance are required whether you have a mortgage or not, so this is usually not a problem. HOA dues may also be applicable. If you cannot demonstrate forward ability to make these payments, a Life Expectancy Set-Aside (LESA) will allocate monies, if available, from the loan proceeds to make these payments for you.

Is a Reverse Mortgage safe?

A reverse mortgage is safe so long as you meet the terms of the loan as listed in the Terms above. For detailed insights you can also read the FAQ "What Are The Risks?"

There are certainly rumors and opinions from many who do not know much about reverse mortgage loans. Their concerns are valid, and simply require education.

However, there are negative stories we sometimes hear about in the media and, while they often construe facts without understanding and context, the stories are about two very real situations that have affected borrowers nationwide:

  1. The borrower used all the money upfront when it wasn't necessary and couldn't afford property taxes and insurance in later years.  In years past it was more traditional practice for borrowers to take a fixed rate loan and draw all available funds upfront at closing, whether they needed them or not.  Not only that, but borrowers were allowed to draw far more on those programs upfront than they can today. 

    We all know that there are many people who struggle to responsibly manage windfalls of money. Lottery winners often lose everything.  However, since they didn't have to make payments, or pay back the loan more than the value of the home at sale, it should never have been an issue. 

    So what was the real problem?  The problem was likely with the payment of taxes and insurance, or maintenance. One might argue then that if they suddenly couldn't pay taxes and insurance, after having a large amount of cash available, that they certainly couldn't have paid them without having done the reverse mortgage. They would have lost the home in a State tax lien foreclosure, regardless.  In fact, a reverse mortgage is never the cause of inability to pay property taxes or insurance.

    Still, the responsibility lies with the lender to make sure that they are providing adaquate education and determining the financial capacity and credit risk of all borrowers. This is now solved with Financial Assessment, which requires that if certain qualifications, and adaquate resources do not exist, to pay taxes and insurance in years to come, that monies must be set aside from the loan to guarantee they are paid, thus reducing the risk of default on those two terms of the loan. Please note, however, that once the set-aside runs out, if the borrower lives much longer than is expected, he/she is expected to make those payments.

  2. A younger spouse lost the home when the primary spouse died, or through divorce.  This was a big one and has made the most news in recent years.  To get a reverse mortgage, you must be 62 years or older.  In years past if a younger spouse was, say, 55, and the 65 year-old spouse on the loan died, the loan went to default and the lender was allowed to call the loan due.  The innocent spouse, who lived in her home for 30 years, was suddenly being kicked out, just because her husband died.  This has been a ridiculous and ugly problem until recently. 

    Not long ago FHA changed the law to allow a non-borrowing spouse (under 62) the ability to qualify with the borrower, and to sign certain documents, that then allowed that younger spouse to continue living in the home under the same terms of the original loan. This meant only that the non-borrowing spouse would continue to age in place by continuing to live in the home as a primary residence, by paying the property taxes and insurance, and maintaining the home.  Again, paying those obligations is required whether you have a mortgage or not. Still, this new law at least protected the spouse from these ugly foreclosures. 

    To allow this new law to work, the amount of the Principal Limit is reduced and calculated against the age of the non-borrowing spouse, so that the insurance fund is guaranteed future value protections.  For example, if a 86 year old man were to apply for a HECM today (June 27, 2015), with a $300,000 home value, he could get $212,700 (71%).  However, if he were married to a 40 year-old woman, she could sign with him for that protection, but they would only qualify to receive a max benefit, based on her age, of $126,000 (42%).

    HUD announced in June of 2015 that loans prior to the new laws, where a non-borrowing spouse exists, will apply equally in fairness to those people.  This great news protects spouses from many years prior from losing their home if their spouse dies, provided they continue to meet the terms of the loan. 

The introduction of Financial Assessment, and Non-Borrowing Spouse benefit, combined with caps on fees allowed, and better disclosure rules, makes this one of the safest and greatest retirement programs available to Seniors.  Springwater Capital is confident in what we can offer you today and appreciative of those who have rewritten the laws for your protection, and for ours.  

Why Springwater Capital?

Springwater Capital is focused on and dedicated only to reverse mortgages. This allows us to invest all our resources to education, online tools and professional media, workshops, and our professional partnerships with certified retirement planning professionals. You will find very few companies in the entire nation who do nothing else but Home Equity Conversion Mortgages, and who work almost exclusively through trusted retirement planning professionals.

Springwater Capital isn’t just a lender. It's a firm with patient, and very passionate strategic planning professionals who absolutely love what they do and who spend all their time engaged in the lives of their clients and sometimes their families. They help you solve real retirement challenges using these products. To them this is rewarding and special and they will be endearing to you. 

Springwater Capital has been in business since 2008. We’ve worked with over 10,000 clients, and closed over 5,000 loans, and we still maintain a BBB A+ rating. We’re dedicated members of the NRMLA and we put all our advisors through its challenging Certified Reverse Mortgage Professional accreditation.

How will I receive my funds and how is the loan length determined?

The length of the loan is determined by the disbursement option you choose. These funds can be disbursed in several ways:

  1. Full or partial lump sum
  2. Line of credit
  3. Monthly payments (tenure or modified tenure play)
  4. Term payments
  5. Combination of any of the above.

It’s your choice and we will work with your financial advisor when necessary to determine the best path to start. The good news is you can change your plan at any time.

I have no debt, no mortgage, and adaquate resources. Why would I get a reverse mortgage?

Yours is simply a question of portfolio strategy and the unknown future. Still, a HECM Line of Credit still may not have any value to you.  A responsible person will at least take time to carefully evaluate the options and apply its risks and rewards to the unknown future. 

There are simply too many diversification strategies to consider before we can apply any benefit to your situation. Unless you have very specific goals, we usually prefer you meet with your financial planner, estate planner, and one of our Advisors, to identify the smartest and most strategic ways to use a reverse mortgage to prolong the life of your porfolio. 

There is one idea we share with those who enjoy your same fortunate financial situation. This illustrates one benefit to having a HECM Line of Credit available at all times, and it opens the door for new ideas that may apply to you:

In 2008 millions of people lost most of the value of their real estate, purchasing power, and liquidity.  Most of us were affected in some way.  Consider a 66 year old couple, who owned a $800,000 home outright in a burgeoning neighborhood. In this particular neighbhorhood, the home values dropped nearly 50%.  Thus, the couple who thought they had an $800,000 asset, now had a $450,000 asset.  Still, what good was the asset? They didn't want to sell it and lose all they had put into it, and they couldn't tap any of its value anyhow. 

Had they got a HECM Line of Credit in 2007, they would have started with a $333,870 line of credit. That meant that at the end of 2008, they would have actually had access to immediately liquidity of $355,000 with a home worth just $450,000.  If they had then waited it out, by 2015, that LOC would have grown to $549,746.  The value of the home would probably just be $500,000 as it started to recover.  So within a few short years, they would actually have access to more liquid cash than the home was actually worth.  And by 2020, the line would be worth nearly $180,000 more than the value of the home.  However, if rates were to climb just 1% by 2016, that line would be worth $250,000 more than the value of the home, assuming a 2% home value increase each year. 

Yes, they could have hedged for a severe market downturn using a reverse mortage.  They could withdraw the $796,000 by 2020 even with the home valued at $550,000, without recourse, and had 150% of its purchase power for a new home. 

Had this couple waited to get one in 2008, they would have only received $241,000 and that line would have grown to $536,000 by 2020 under the same rates. It is never wise to wait, especially when values are heading upward in any market.

This is just one way to approach the strategic planning of a reverse mortgage to protect or prolong your total retirement porfolio. 

What if I’m already in foreclosure?

You may still be able to get a reverse mortgage to save the foreclosure and keep your home. Schedule time with us and your attorney to work out the details as soon as possible.

How will this affect our heirs?

If we're speaking strictly about the home value when the parents die, it is no different than without a reverse mortgage.

Suppose you had a mortgage or home equity loan today with a $25,000 balance when you died. Your heirs would sell the home at its market value, pay off the balance, or keep the home and pay the balance. There is nothing different with this, except for one additional benefit: HUD gives your heirs up to six months, plus two three-month extensions, upon request, to sell the home or pay the balance.

Now suppose the home is worth $500,000 and the balance on your note when you die is $100,000. The heirs can either write a check to pay off the home, get their own mortgage and pay it off, or sell the home at market value and pay the note and receive the equity difference just like before. The loan payoff is the lesser of 95% of the appraised value or the loan balance, made possible by the HUD insurance fund through mortgage insurance premiums, to guarantee losses to the lender. If you had a $600,000 balance and the home value was $500,000, the heirs still only have to pay the market value to pay off the loan and keep it.

A reverse mortgage can have very positive effects on a family. The parents are often relieved of pressure and worry. The home can be maintained with the cash from the line of credit. The parents may want to help grandchildren or others with college or emergencies they could not have helped with otherwise. Chidlren can renovate the estate with the funds to increase its value while mom and dad are living, making it more marketable when they die. In other words, the benefits heirs enjoy 30 years later when their parents die, could have been enjoyed far more while they were living.

What are typical uses or benefits of a reverse mortgage?

There are several:

  • The funds are loaned tax free
  • Read our top responsible uses here.
  • A growing line of credit.
  • You can never owe more than the value of the home
  • The loan is non-recourse. You'll never have to make a payment if you meet the terms of the loan.
  • You do not lose Social Security or Medicare benefits.
  • You will have greater financial freedom and options than you otherwise would.
  • You could retire earlier and still maximize your Social Security benefits before age 70.

What is the basic process for a reverse mortgage?

We make it as easy as possible and we keep you very informed every step of the way. You can learn about each of these in detail here.

  1. Education and Qualification
  2. HUD Counseling
  3. Application and Disclosures
  4. Processing and Underwriting
  5. Closing
  6. Disbursement

What if I outlive the loan?

The loan is not due until you die, sell, or cannot meet the obligations of the loan, such as paying taxes and insurance, and maintaining the home.

Will a reverse mortgage affect my Social Security, Medicare, or pension benefits?

A reverse mortgage is considered loan proceeds and not income, so these are not affected. Medicaid and SSI may be affected under certain conditions. We can help you and your financial planner avoid this impact.

A reverse mortgage may allow you to maximize your Social Security benefits if you need a source of income prior to turning age 70.

What happens if my lender goes out of business?

When you close your loan, HUD puts a 2nd lien on your home at 150% of its current value (click here for information about this). This allows HUD to move into 1st lien position automatically in the unlikely event your current loan servicer goes out of business.

Because of Mortgage Insurance Premiums, HUD is able to guarantee your payouts, even if your balance exceeds the value of the home in years to come. Your terms will never change. You will always receive your agreed-upon disbursements.

What can I use my reverse mortgage funds for?

Almost anything you want. However, do not work with any company that encourages your to get a reverse mortgage to invest in its products. In fact, report them! You cannot use funds to pay for certain things, such as estate planning firms, with initial disbursement. Consult your advisor.

  • Pay off existing mortgages (required)
  • Pay off medical bills
  • Pay off debts, credit cards, and bills
  • Use for home repair and improvement
  • Pay property taxes and insurance
  • Increase cash flow
  • Supplementing your retirement portfolio
  • Deferring access to Social Security to maximize benefits
  • Traveling
  • Helping family and grandchildren
  • Enjoying life
  • Buy a second home

What can’t I use a reverse mortgage for?

There are no limitations. Use it for anything you choose.

Can we close in the name of the trust?

This depends on your state and some restrictions apply with different lenders. In most states, yes. In Texas, you would have to remove the estate from the home, temporarily, close in your name, then put the estate back into the trust after closing. We work with your estate planner to determine whether your Trust is acceptable under HUD guidelines, and to make sure the interests of the trust are protected. The trust must be an inter vivos revocable trust, or an Illinois land trust. Irrevocable trusts are considered on a case-by-case basis. Trusts are reviewed by a trust attorney and approved by the lender’s credit desk.

If I die before my spouse, is she protected?

Yes. She may remain in the home as long as she would like, provided she is able to continue to meet the terms of the loan. The loan becomes due when the last borrower dies, if the terms of the loan are not met, or if the home is sold.

This protection applies to non-borrowing spouses as well under the same terms.

My spouse is not yet 62, can we qualify?

Yes. There is still a way to qualify and protect the non-borrowing spouse in event of your death. We will help you identify qualifying factors in our first meeting.

Frequently Asked Questions

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