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Securing a Hawaii Reverse Mortgage

If you’re a senior and you’re planning to retire in Hawaii, consider taking out a Hawaii reverse mortgage to supplement or provide monthly income. Most anyone over the age of 62 who owns a home with equity is qualified to receive reverse mortgage funds.

What is a reverse mortgage?

A reverse mortgage is unlike any other mortgage option available in the market. In most loan situations, you must make payments to your lender in exchange for the use of funds. With a reverse mortgage, your lender makes payments to you, and you can spend the funds you receive any way you need to. Reverse mortgages are commonly used by seniors to pay for day to day living expenses.

How can reverse mortgage funds be used?

Money from a reverse mortgage can help pay for medical expenses, vacations, a down payment on a new home, debt obligations, and any other bills. There are no restrictions on spend or use. 

What types of reverse mortgages exist?

Reverse mortgages have three forms:

  • Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
  • Single-purpose: backed by nonprofits or state or local government agencies. 
  • Proprietary: backed by private entities.

The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.

Who can get a reverse mortgage?

Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in Hawaii, including but not limited to:

  • Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
  • Closing fees: include all the same fees required of a traditional mortgage closing. 
  • Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
  • Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds?

You can customize your equity payout arrangement to meet your personal needs. Your lender can deliver the money to you in any of the following ways.

  • As an established payment amount each month. This is the most common method. It provides you with a steady stream of income.
  • In full, as a lump sum payment immediately upon the close of the loan transaction. This method is best if you plan to downsize into a new home or wish to pursue other investment opportunities.
  • As a line of credit that you can access at any time. This method is best if your expenses tend to vary widely and a steady stream of income wouldn’t suit your needs.

You can also combine any of the above arrangements to create a completely flexible payout method.

Does the equity need to be repaid?

Your lender will obtain ownership of your home equity, which must be repaid if you move, sell the home, or pass away. But don’t let this alarm you. Your lender does not gain ownership of your home during or after a reverse mortgage. You can continue living in your home without paying anything back to your lender even up until the event of passing.

If the reverse mortgage homeowner passes away, their heirs will receive ownership of the home. They will also inherit the responsibility of paying off the reverse mortgage. Most of the time, heirs sell the home and pay off the reverse mortgage with the proceeds. 

If the property decreases in value such that the sale price of the home is less than your total outstanding loan amount, don’t worry - federal regulations prevent lenders from collecting more than what the home is worth. In this situation, the lender must simply suffer a loss.

Hawaii Reverse Mortgage Lenders

Once you’ve decided to take out a reverse mortgage, the most important thing to consider is the lender you’ll work with.  Every lender is different. Each one offers different rates and requires different fees.  Contact as many lenders in your area of Hawaii as possible and find out what rates and terms they provide.

Reverse mortgage fees can get expensive. It’s critical that you find a lender who won’t charge more than what’s fair. For further information on what to expect when applying, read our reverse mortgage checklist.

Hawaii Senior Resources

The Hawai'i Aging and Disability Resource Center lists a number of service providers by island, including programs that allow seniors to maintain their independence while continuing to live in their homes. They're located on Hawaii, Oahu, Maui, and Kauai, but also serve Molokai and Lanai. Choose your area of interest and then use the search tool provided to find services like nutrition and wellness, medicare assistance, caregiver assistance, transportation help, and more. 

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