Reverse Mortgage, also called a HECM (Home Equity Conversion Mortgage) is gaining in popularity with Hawaii's seniors who have equity in their homes and want to supplement their income.
The HECM is the only reverse mortgage insured by the Federal Government. If you are a Hawaii homeowner age 62 or older and have paid off your mortgage or paid down a considerable amount, and are currently living in the home, you may participate in FHA's HECM program for a reverse mortgage in Hawaii.
Yes, you can now live in your island home on Maui, Oahu, Kauai, or Hawaii island, and never have to make a mortgage payment until the day you permanently leave as long as you continue to pay the property tax, homeowner's insurance, and any maintenance fee.
Requirements For A Reverse Mortgage In Hawaii
There are many factors to consider before deciding whether a Reverse Mortgage is right for you. To aid in this process, you must speak with a HUD certified counselor to discuss program eligibility, financial implications and alternatives to obtaining a reverse mortgage. There are borrower and property eligibility requirements that must be met.
Borrower Requirements
You must:
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount of the mortgage
- Occupy the property as your primary residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make the timely payment of ongoing property charges such as property tax, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD-approved HECM counselor
Property Requirements
The following eligible property types must meet all FHA property standards and flood requirements:
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Manufactured home that meets FHA requirements
Financial Requirements
- Income, assets, monthly living expenses, and credit history will be verified.
- Timely payment of real estate taxes, hazard and flood insurance premiums will be verified
Loan Amount Based On
The amount you may borrow will depend on:
- Age of the youngest borrower or eligible non-borrowing spouse
- Current interest rate
- Lesser of:
- appraisal value;
- the HECM FHA mortgage limit of $679,650.00; or
- the sales price (only applicable to HECM for Purchase)
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HECM Costs
Like any loan, reverse mortgage does carry a cost. You can pay for most of the costs by financing them and having them paid from your loan proceeds. Financing the costs means that you do not have to pay for them out of your pocket. On the other hand, financing the costs reduces the net loan proceeds to you.
The HECM loan includes several fees and charges which are:
- Mortgage Insurance Premium (MIP): you will incur a cost for FHA mortgage insurance premium. The mortgage insurance guarantees that you will receive expected loan advances. You can finance the mortgage insurance premium as part of your loan.
- Third Party Charges: Closing costs from third parties can include an appraisal, title search and insurance, surveys, inspections, recording fees, mortgage taxes, credit checks and other fees.
- Origination Fee: You will pay an origination fee to compensate the lender for processing your reverse loan.
- Servicing Fee: Lenders or their agents provide servicing throughout the life of the HECM/reverse loan. Servicing includes sending you account statements, disbursing loan proceeds and making certain that you keep up with the loan requirements. Lender may charge a service fee of no more than $30 (annual adjustable rate) or $35 (monthly adjustable rate).
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Disadvantages & Advantages of A Reverse Mortgage In Hawaii
Disadvantages:
- It's too complicated - at first, reverse mortgages can be a bit confusing for some as it is a mortgage in reverse. Early on, many experts criticized the product because of a lack of understanding. As they learned about the details of the reverse mortgage, they came to see the benefits and the true intention of the program and have since embraced it as a viable financial option.
- Not enough cash can be pulled out - if you're a senior with significant amount of equity in your property, you might be frustrated that reverse mortgage only enables you to use some of it and not all or most of it. This is done to help the senior from eroding most or all of their equity as interest does accrue on the unpaid balance.
- High Fees - reverse mortgages does carry a slightly higher cost than regular conventional mortgages because of the upfront and annual insurance cost. However, these fees can be financed by the loan proceeds and you can shop multiple reverse mortgage lenders to find the best deal.
- Accumulating Interest - a reverse mortgage is a negative amortization loan. Meaning, the balance grows over time as suppose to a regular forward mortgage where the balance decreases over time. The balance grows because of unpaid interest charged on the loan and the longer you hold the loan, the more interest will accrue. However, you can never owe more than the value of the home and the value of the home is also likely to increase.
Advantages:
- You get to stay in your home - the number one goal of the reverse mortgage is to enable seniors to stay in their homes without making a single mortgage payment till the day they permanently leave the home as long as you pay the property taxes, insurance, and any other property fees. This was the goal of the first reverse mortgage recipient, Nellie Young of Portland, Maine.
- You remain the owner of your home - a common misconception of the reverse mortgage is that the bank takes ownership of your home. This is completely false. Like a conventional loan, you continue to maintain ownership of your home as long as you comply by the terms of the loan and pay all property taxes, insurance, and any other property fees.
- You're protected if the housing market declines - the reverse mortgage/HECM is a federal insured loan which means it has greater security. Should the loan end up been more than the value of the home when sold, government insurance will kick in and cover the difference. This means that you can never repay more than the value of your home.
- Several ways of getting your loan proceeds - each individual senior has different needs. Thus, the reverse mortgage has different disbursement options to cover different needs. This includes the choice to receive funds in a full or partial sum, a line of credit, monthly payments, or a combination of any of these.
- Typically tax-free - as a reverse mortgage is a loan, the money from it is usually tax-free, whether you receive it as a fixed income or in a lump sum. Please consult with your financial advisor as each individual is different.
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How Would I Receive My Funds For A Reverse Mortgage In Hawaii
Your reverse mortgage funds can be disbursed to you in a variety of ways. You may receive:
- Lump sum - at loan closing, your lender will disburse all loan proceeds directly to you to be used as you wish.
- Partial lump sum - at loan closing, your lender will disburse to you a certain amount of your funds and the rest remains in a line of credit. The amount for the most part, depends on you.
- Line of credit - at closing, your funds are available to you to withdraw at your choosing.
- Monthly payments (tenure) - your funds are given to you as a monthly payment for the life of the loan.
- Monthly payments (modified tenure) - your funds are given to you for a set amount of time specified by you or a combination.
Reverse Mortgage Hawaii