HECM Scenario Additional Legal Disclosures
Dan and Maria HECM ARM with Line of Credit Option
Illustrations are for educational purposes only and reflects a variable rate HECM with a borrower age 72 who resides in California with a home value of $750,000. Borrower’s required mortgage payoff is $115,000 and financed closing costs are approximately $25,530 ($22,415 finance charges; $3,115 other charges). The initial interest rate is 2.920% (2.920% APR). The borrower has an initial principal limit of $422,250, takes an initial draw of $140,530 to cover mandatory obligations and takes $78,000 cash at closing. The borrower selects a line of credit payment plan and has an initial line of credit of $203,720. Rate quote generated on 4/7/22; this rate could change or not be available at commitment or closing.
Interest Rate and APR
The annual percentage rate (APR) corresponds to the periodic interest rate and does not include costs other than interest. For the loan being illustrated, the APR is based on the index that is the 1 year CMT, which is the weekly average yield on United States Treasury Securities adjusted to a constant maturity of One Year, as made available by the Federal Reserve Board, plus a margin of 2.050%. The APR can change monthly based on changes in the index value. The first rate change can occur on the first day of the month between one and six months after closing, and the rate can change every month thereafter; the rate can never be more than 7.920%, which is 5 percentage points higher than the initial rate. The borrower can select an adjustable rate HECM with different interest rate features such as one where the interest rate changes annually.
HECM Closing Fees, Including Finance Charges
HECM closing fees that are finance charges include a lender origination fee of the greater of $2,500 or 2% of the home’s value (up to $200,000) plus 1% of the value over $200,000 (up to a maximum origination fee of $6,000), an FHA initial mortgage insurance premium of 2% of the home value, and charges such as a document preparation fee, MERS registration fee, tax verification fee, title settlement/closing fee, and HECM counseling fee. Other closing charges include third party fees such as a credit report and appraisal fee, flood certificate, title insurance premiums, title recording services, notary fee, recording charges for mortgage, and recording transfer or release fee. Closing fees vary depending upon the location and value of the home, but typically range in the amount of $7,000 to $33,000.
HECM Line of Credit & Disbursement Limitations
If the borrower selects a line of credit payment plan, any available line of credit may be drawn, repaid and re-used during the draw period. The draw period does not have a time limit as long as the borrower has available credit and the loan has not matured or a default has not occurred. If the borrower selects a line of credit payment plan, the available credit increases at a rate equal to the note rate of interest plus the on-going FHA mortgage insurance premium amount of one-half of one percent (0.50%). Disbursements during the first year of the loan are subject to HUD’s initial disbursement limit, which is the greater of: 1) 60% of the principal limit; or 2) the sum of mandatory obligations plus 10% of the principal limit.
Monthly HECM Fees
The lender may charge a monthly servicing fee of $20 to $35 that is added to the loan balance each month. An FHA annual mortgage insurance premium of 0.50% of the outstanding loan balance, divided by 12, will be added to the loan balance each month.
Other Important Information
A reverse mortgage loan does not require regular monthly installment repayment obligations of principal and interest, however, accrued interest will be added to the loan account, negative amortization will occur, and a borrower’s equity in their home may decrease over time. Borrower is responsible for paying their property charges which include real estate taxes, homeowners’ insurance and homeowners association fees, if any, among other applicable property charges, and must occupy the home as their principal residence. If the borrower does not meet these or other loan obligations, the loan must be repaid.
The loan is subject to underwriting and an appraisal of the home. Certain underwriting requirements may require that some loan proceeds be set aside to pay for property charges for a period of time during the term of the loan. Also, if an appraisal reveals the need for certain property repairs, loan proceeds may need to be set aside to pay for such repairs to the home during the first year of the loan.