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The Home Equity Conversion Mortgage, HECM, or reverse mortgage is a program designed with borrowers over the age of 62 in mind. The reverse mortgage program allows the equity in a borrower’s home to be used for income. Income which is in the form of a lump sum, monthly payments, or a line of credit that is given to the borrower rather than the borrower making payments.
The reverse mortgage program is a U.S. Department of Housing (HUD) and Urban Development and a Federal Housing Administration (FHA) initiative which was started in 1990. The overall success of the program has increased despite the recent real estate market slump.
There are several programs within the reverse mortgage structure including a simple reverse mortgage which allows the borrower to use their current home’s equity for payment forms; the HECM for Purchase which allows the borrower to use the equity in their current home to purchase a new home; adjustable and fixed interest rate programs. New programs and changes are constantly being made to protect the borrower’s interest. Yet many borrowers want to know how the reverse mortgage program is serviced.
In order to participate in the reverse mortgage program, the borrow must meet the basic program requirements of being 62 years or older; own the property being used outright or have a low enough mortgage balance; the home being used must be the borrower’s primary residence; and the borrower must meet with a HUD approved HECM counselor.
Reverse mortgage programs are only based on the age of the youngest borrower, the current market interest rate and either the lesser appraisal amount or the new HECM FHA mortgage limit of $625,500. There are no financial requirements and the repayment of the loan is only due when the borrower moves out of the home used or dies.
There are various fees associated with a reverse mortgage which are the 2 percent upfront insurance premium plus the additional 0.5 percent yearly premium fee; origination fees; closing costs; mortgage insurance; interest and servicing fees.
The servicing of the loan includes fees that are assigned by the reverse mortgage lender. Servicing of a reverse mortgage is a monthly task and must be done for the life of the loan. Servicing includes but is not limited to, sending the borrower statements; loan disbursements; and the overall upkeep of the loan requirements. The lender can only charge the borrower $25-35 a month for servicing a reverse mortgage loan.
Servicing of a loan is dependent upon the mortgage company. After speaking with a HUD approved HECM counselor borrowers should contact a reputable reverse mortgage lender to discuss how the company services reverse mortgages and the fees applied for servicing the loan. Understanding the reverse mortgage program is important for borrowers to ensure they are well informed and participate in the reverse mortgage that is right for them.
If you would like more information please call (866) 683-3690 or complete our online Reverse Mortgage Information.
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