Reverse Mortgage Funding LLCReverse Mortgage Funding LLC

Reverse mortgages let senior homeowners tap their home equity without taking on the monthly repayments that are required with traditional home equity loans. New 2015 federal regulations increased the screening requirements for applicants, to ensure they can manage the responsibilities of a reverse mortgage such as paying property taxes and insurance. The new rules also reduce risk for lenders, and that means more companies may start courting older homeowners with reverse mortgage offers.

Reverse Mortgage Funding LLC is a nationwide lender based in New Jersey and New York that deals exclusively in reverse mortgages, also known as home equity conversion mortgages (HECMs).

Product Descriptions:

Reverse Mortgage Funding offers 4 types of HECMs:

– The adjustable-rate HECM’s interest rate changes each month, depending on current rate conditions. Borrowers can choose one or more options–monthly payments, a lump sum payment, or a line of credit.

– The annual HECM is another adjustable-rate loan, but the interest rate only changes once a year rather than every month. This loan also caps annual rate increases to 2% and total rate increases over the life of the loan to 5%. Borrowing options are the same as with the adjustable-rate loan, above.

– The fixed-rate HECM carries the same interest rate over the life of the loan and delivers the loan proceeds as a single lump payment.

– The purchase HECM is designed to help downsizing homeowners sell their current home and purchase a new one without taking on monthly mortgage payments.

Pros:

Reverse mortgages give borrowers tax-free access to their home equity without loan payments as long as the borrower(s) live in the home, pay all property taxes and insurance, and maintain the home. The loan doesn’t affect Social Security or Medicare benefit eligibility. The repayment total is never more than the home’s value, regardless of fluctuations in the real estate market. As of August 2015, Reverse Mortgage Funding LLC is accredited with the Better Business Bureau and has an A+ rating with the agency.

Cons:

Reverse mortgages are not recommended for seniors who plan to move soon due to the costs, and borrowers who need to move to assisted living or skilled nursing must sell the home if they are away for more than 1 year. The loan balance rises as more money is drawn out, fees are usually higher than standard mortgage and refinancing fees, and those factors decrease the amount of home equity available to heirs. Reverse mortgage loans often affect eligibility for need-based benefits such as Medicaid. Borrowers who fall behind on taxes, insurance and maintenance may lose the home to foreclosure. Anyone living in the home at the time of the borrower’s death who isn’t a co-borrower must move out when house is sold to repay the loan, unless they can afford to purchase the home themselves.

Fine print:

Borrowers must be at least 62 years old to qualify and must use the home as their main residence. Lenders must assess prospective borrowers’ income, credit reports, and cash flow before approving a reverse mortgage loan. As with buying a home or refinancing a mortgage, there are many costs (loan origination, insurance, closing costs) besides the loan amount. Anyone considering a reverse mortgage should consult with their financial planner, tax preparer, attorney, and a reverse mortgage counselor to fully understand the benefits, risks and responsibilities of this type of loan.

Cost:

Varies by loan type, loan amount, the interest rate at the time of the loan for fixed-rate loans, and the ongoing interest rate for adjustable-rate loans.

Best for…

Seniors who have talked at length with a HUD-approved reverse mortgage counselor and fully understand what a reverse mortgage entails, seniors who plan to stay in their home for several more years, seniors who don’t wish to leave their home to their heirs, and those who have already carefully considered other options such as refinancing, cost-cutting, and home equity loans.