loan type: Reversible Mortgages
helping retired homeowners
Known as Reverse Annuity Mortgages (RAMs),
these instruments are gaining popularity with older homeowners who want to use the equity in the home to supplement their income.
The RAM is a special type of loan that works in reverse - the lender makes monthly payments to you based on the equity of your home.
More Information:
- how it works
- home equit conversion mortgage (HECM)
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How It Works
The lender will appraise the home value and make a home loan based upon a percentage of the current value.
The homeowner retains ownership. The lender will then allow you one of four payment options:
- lump-sum payment
- equal monthly annuity payments to the homeowner for up to the amount of equity in the home. The number and schedule payments depend on the equity in the home and age of the recipient.
- an equity line of credit that the borrower can draw upon as needed
- combination of annuity payments and equity line
No payments will be required as long as the borrower remains in the home.
RAMs do not have to be repaid until the borrower moves, sells, refinances the property or dies. If the property is sold, any remaining proceeds after the mortgage is paid off is distributed to the homeowner (or next of kin).
The advantage of the RAM
the homeowner receives tax-free income each month.
The disadvantage of the RAM
the home owner is drawing down on their home equity. If the homeowner wants to move or sale their house, there may not be enough equity in the home after a number of annuity payments have been paid.
Available types of RAMs available today:
Home Equity Conversion Mortgage (HECM)
The second type is a proprietary CASH ACCOUNT offered in select states:
click here for direct information from www.financialfreedom.com
Loans must be obtained from approved lenders.
Borrowers must first meet with an Reverse Mortgage counselors to review the RAM product before submitting an application.
There is more information available:
32-page booklet from AARP:
www.aarp.org/revmort
The HUD's Top-10 things you should know about RAMs:
www.hud.gov
Independent information on Reverse Mortgages:
www.reverse.org
Home Equity Conversion Mortgage (HECM)
The oldest and most popular RAM product:
the HECM is available from HUD-approved lenders in all 50 states.
The loan size of the HECM may vary. Three criteria are used to determine size:
- the borrower's age;
- the value of the home;
- current interest rates.
Maximum loan limits vary by region. View loan limits:
www.fhalibrary.comBorrower can choose from four payment methods:
- lump-sum payment
- equal monthly annuity payments to the homeowner for up to the amount of equity in the home. The number and schedule payments depend on the equity in the home and age of the recipient.
- an equity line of credit that the borrower can draw upon as needed
- combination of annuity payments and equity line
No repayments will be required as long as the borrower remains in the home.HECMs must be obtained from HUD-approved lenders.
Borrowers must first meet with an approved HUD counselor to review the RAM product before submitting an application.
To locate a counselor in your area:
www.hud.gov
Mortgage Lending Options
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