Available Plans
There are three available reverse mortgage plans available: FHA's Home Equity Conversion Mortgage (HECM), FannieMae's Homekeeper and Financial Freedom's Cash Accounts. Each have their own advantages and work differently for each individual.
1) Home Equity Conversion Mortgage (HECM): The HECM Monthly is by far the most popular reverse mortgage plan available with approximately 90% of all reverse mortgage applicants choosing this program. The HECM monthly interest rate is set at 1.5% over the 1yr T-Bill and is a variable interest rate, adjusting to market standards once a month. There is a 10% interest rate cap above the initial interest rate in order to protect the interests of the homeowner in the off chance that the interest rates should go that high.
Another option within the HECM program is the Annual which isn't chosen too often. The two major differences are the interest rate and the interest rate cap. The interest rate is higher (based off of the average annual treasury note, as opposed to the average monthly treasury note that the HECM Monthly uses), thus yielding less funds than the Monthly, and adjusts once a year to market standards. The interest rate cap is set at 5% above the initial interest rate. This option isn't often chosen but those that do choose it favor the security that a 5% interest rate cap offers.
A major difference between the HECM and other reverse mortgage products is that the HECM is insured by FHA, thus protecting the interests of the homeowner. This is also the major difference in fees associated with reverse mortgages as there is a mortgage insurance premium that FHA charges that is deducted from your proceeds.
With the HECM you have the several options on how you would like to receive your funds. You can receive it as a (1) lump sum, (2) monthly income for life (you could also choose to receive larger monthly payments for a set amount of months), (3) a line of credit, or (4) any combination thereof. If you decide down the road that you would like to receive your funds differently than you can pay a small fee, which is determined by the lender, and thus change it to monthly income to a line of credit, for example.
Please visit Frequently Asked Questions for more information.
2) FannieMae Homekeeper - The Homekeeper is very similar to the HECM program in the way that it is structured. The interest rate is based on the index rate of the Federal Reserve and has an interest rate cap of 12% above the initial interest rate. It does meet some needs that other programs don't meet, such as the ability to purchase a home with the Homekeeper.
Please visit Frequently Asked Questions for more information.
3) Financial Freedom Cash Accounts - Cash Accounts are a proprietary reverse mortgage offered by Financial Freedom. This reverse mortgage option generally caters to the homes with a larger amount of equity since their is not a pledged value or limit, as there is with the HECM and Homekeeper reverse mortgages. The interest rate adjusts semiannually and there is an interest rate cap set at 6.5% over the initial interest rate.
There are three options with the Cash Account: Credit Line, Combo and Cash Out. With the Credit Line option the fees are standard and your funds are set up into a credit line that you can draw from at any time. With the Combo option have receive the benefit of no origination fee, leaving only title, escrow and other related costs, but you are required to draw 75% of the available funds. Finally, with the Cash Out option you can obtain a zero cost loan but you are required to withdraw all of the available funds.
The Cash Account is generally chosen because it yields more on higher value homes or because they can obtain the reverse mortgage at little to no cost to them.
Please visit Frequently Asked Questions for more information.