Understanding Servicing Account Set Asides

There are several moving parts which make up a reverse mortgage, for this discussion we will focus on just two elements, the service set aside account and the mortgage insurance account.

The basic underlining premise of a reverse mortgage is to free the senior from monthly mortgage payments. This allows their equity to be used in a positive fashion during their autumn years.  A reverse mortgage is taken out most commonly in the form of a lump sum or as one large distribution of funds. Having converted the equity into spendable dollars the balance due on the home begins to work internally without further intervention from the senior. While there are no payments obligations from the senior there are payment obligations which are administrated to by the servicing company responsible for the stewardship of the loan.  The servicing company books internal post or additions to the mortgage balance for the interest due monthly and the mortgage insurance also due monthly. The servicing company is compensated or their efforts through the servicing set aside account which they book or post to the monthly balance as well. Read More.....

How Does A Reverse Mortgage Work?

Millions of Americans have lines of credit, and many use that credit for every day purchases, emergencies, or needs that they simply can’t cover with cash. Rather than relying on a personal loan or another line of credit in an emergency, individuals should look into getting a reverse mortgage. Seniors have the ability to obtain reverse mortgages that give them access to cash when they need it, without having to rely on another type of credit. 

What is a Reverse Mortgage?

Reverse mortgages are loans that enable seniors who are at least 62 years old to borrow the money they need against the equity of their house. Typically, seniors can borrow up to the amount of the home equity. So, those who own expensive homes but are low on cash could get a reverse mortgage to take care of their needs.

Those who have retired and need cash can easily get it from a reverse mortgage, eliminating the need to take out personal loans, max their credit lines, and other shady ways of getting cash. One of the advantages of the reverse mortgage is that the individual does not have to pay back the loan until they decide to move, sell the house, or in the event of their death. The heirs would then be responsible for paying back the loan, and typically end up selling the house in order to cover the fees.

All in all, a reverse mortgage is a peculiar type of mortgage that can turn out to be of tremendous help for a lot of senior citizens who cannot longer afford to make a living, but still possess homes they are paying mortgages for.

To be eligible for a reverse mortgage, you need to be at least 62 years old, occupy the home as a primary residence, and either own your own home outright or only owe a small amount on your existing mortgage loan. This balance due can be paid off at closing with the proceeds from the reverse mortgage.

In general, a reverse mortgage is tax-free and has no income restrictions. Additionally, most payments from a reverse mortgage won't affect Social Security or Medicare benefits. In fact, many seniors use a reverse mortgage to supplement their Social Security and Medicare, allowing for more financial security. This is a beneficial type of loan for those over the age of 62 who find themselves in need of money for one reason or another. It’s important to research and determine whether this is the loan for you or not.

Pitfalls of Reverse Mortgages

Even though reverse mortgages have become more and more popular over the years, thanks to their obvious advantages, there are still plenty of drawbacks that can easily place them in the “loans with pitfalls” area. Here are some insightful ideas on how these reverse mortgages actually work and why you should be extra careful when considering going this route.

Reverse mortgages are strictly for seniors who are at least 62 years of age and in need of cash. However, depending upon the terms and conditions, falling real estate prices, and due to the high incidence of reported frauds, reverse mortgages can easily turn into high risk loans.

However, these loans are able to transform home equity into cash and don’t have to be paid back until the borrower dies or moves out of the respective property. This is a huge draw, and one of the reasons that people go this route.

One of the pitfalls happens when the borrower decides to move. Whether he’s relocating to be closer to his children or wants to travel the world, when he leaves the house, he has two options. He can either come up with all of the money he has borrowed and pay it in full, or he can sell the house. Sometimes, selling the house can be so difficult that borrowers have no choice but to pay the loan or lose their house to foreclosure.

The official statistics show that there is a huge boost in the number of seniors getting reverse mortgages, so it seems that the risk factors don’t make much of a difference on the popularity of them. However, it’s important to realize that getting a reverse mortgage should never be an answer if the senior can’t stay in their own home. The extremely expensive fees these loans attract and the many examples of frauds turn them into clock bombs waiting to explode in these vulnerable seniors’ faces, and this is why they should be treated with a lot more attention.  Questions such as “are you able to afford to stay in your home?” should be mandatory for everyone who decides to get a reverse mortgage, as cases of those who end up losing their homes shortly after getting the reverse mortgage loan they wanted are numerous.       

  

Plus, the standard closing fees or the mortgage insurance premium fees are just some examples of what you will face when getting such a loan. Insurance agents looking to take advantage of vulnerable individuals are certainly going to corner and try to persuade you to invest the money in an annuity that won’t begin payments for years, and this can only mean an obvious scam. 

How Do Reverse Mortgages Work?

Before you can truly understand reverse mortgages and the way they work, it is useful to know what home equity is. Home equity, also known as real property value, is the market value of the homeowner’s interest in the home. In other words, home equity is the difference between the fair market value of the home and the outstanding balance of all liens on the respective home.

Reverse mortgage loans, also known as lifetime loans for seniors, are types of loans that will allow older individuals to turn home equity into cash without those pesky tax implications. Plus, they get to retain the ownership of their home. Reverse mortgages do not involve any monthly payments and the repayment of the loan is deferred until the person borrowing the money is no longer living in the house. Of course, once the loan becomes due, it will need to be paid in full, plus any interest and additional closing costs. Still, thanks to the lack of payments made on a monthly basis, the amount owed tends to grow as time passes by, and the equity remaining after selling the property and paying off the respective loans tends to get smaller.

Reverse mortgage loans are so popular and advantageous to homeowners because they’ll never pay more than the exact value of their home. Another advantage is that the borrower can continue to live in their home. They’ll pay for the taxes, repairs, insurance and other costs just like a regular homeowner. The disadvantage is that failure to pay these payments can translate into a due loan that will become fully payable.

Borrowers who take advantage of this loan cannot have any other types of loans on the house. In other words, if the house already has a mortgage, this loan has to be paid off using proceeds from the reverse mortgage. Nevertheless, another great advantage of getting a reverse mortgage loan is the option of borrowing more money as the borrower grows older and the home value increases


The main eligibility conditions a borrower needs to satisfy are the following: he or she must be over 62 years of age, must own the property outright and also occupy the residence the majority of the year. A HUD Counseling Session is usually mandatory and borrowers need to attend these sessions and get counseling either by phone or in person