Reverse Mortgage – Few negative issues.

There are a few negative issues with reverse mortgages. 

  – There is a ceiling on the amount that can be borrowed. 

  – If you are on SSI or Medicaid you can lose benefits if you don’t spend down your            entire loan amount every month. 

  – The upfront closing costs and loan origination fees can be 8 percent to 10 percent of the loan limit. That’s equivalent to paying 8 to 10 points on a conventional mortgage loan.

It is important to realize that, even though you don’t have to repay the loan until you leave the house, you’re still incurring debt. If your home value appreciates fast enough — a big “if” these days — that appreciation could offset some of your borrowing costs. But in most cases the amount you owe (your loans plus interest) grows over time, while your equity declines. And don’t forget that you’re still responsible for the ongoing costs of maintenance, insurance and real estate taxes.

 – Your kids  might be upset to discover the bank owns a substantial portion, or even all, of your home. Be sure to talk to your heirs if you plan to take out a reverse mortgage. Granted, they’ll want what’s best for you in the long run, but it’s always wise to avoid surprises.

A reverse mortgage should never be the centerpiece of your retirement plan, but it can make sense for some people.

    Remember – the loan limits and fees vary by provider, so be sure to research them thoroughly.

Reverse Mortgage – possible surprises

A reverse mortgage allows homeowners over the age of 62 to cash in on the equity of their home, but many people are not aware of all opportunities…

With a reverse mortgage the amount you receive will probably be less than you are shown in the initial calculations. This is because the money for the taxes, insurance, and fees is subtracted from the amount the mortgage holder receives for their monthly payment, thereby reducing the net amount of the money you’ll get each month. (You are prepaying all the administrative fees in the beginning to do the reverse mortgage.)

Reverse mortgage holders could lose their home when it is no longer their primary residence (to be confined to an assisted facility, or to move for much of the year to a second home or somewhere).

Keep your eye on the future and remember that the money from the reverse mortgage could allow you to keep your independence at home should you or your spouse’s health take a turn for the worse in the future.

A reverse mortgage can be a great financial vehicle to carry you through your golden years in relative financial security. Just be aware that there are dangers to reverse mortgages, just as with any other financial products.

It’s always wise to avoid surprises.

Reverse Mortgage – keep in mind

Reverse mortgages allow you to tap into your home’s equity without having to sell it. Depending on your age and the value of your home, a lender will offer you a variety of payment options. Monthly payments or a line of credit that you draw from gradually will cost a lot less in interest than a lump sum.

Rather than slowly gaining equity in your property, your equity is likely to go down over time with a reverse mortgage.  If you take a monthly payment, then each month, you’ll add to the outstanding balance of the loan. As with any other loan, your lender will charge you interest on that balance. If your total loan balance grows faster than the value of your property  (which is certainly possible), especially with home prices falling dramatically in many parts of the country,  then you’ll have less equity.

Even if your home is paid off completely, you won’t be able to borrow the full value of it. For instance, a 62-year-old living in Houston would only qualify for a $125,000 loan on a home worth $200,000. Estimates fees and closing costs totaling over $16,500, leaving you with a lump sum of less than $108,500.

The older you are and the more your home is worth, the more you’ll be able to get from a reverse mortgage. So if you wait until you really need a reverse mortgage, you’ll often get better payouts.

Although you should keep these thoughts in mind, a reverse mortgage still might be a useful part of your financial plan for your retirement years.

The way to stop foreclosure.

Foreclosures are at an all time high with the current economical conditions,. They affect homeowners of all ages. If you qualify for a reverse mortgage, you may apply for a reverse mortgage and stop the foreclosure process in your home. As a matter of fact, you can use a reverse mortgage so you can stay in your home for as long as you want.

There are a couple benefits to doing so. First, you stop foreclosure by using the money from the reverse mortgage to pay off your old home loan. Second, you improve your cash flow because you don’t make any monthly payments to the lender. On the contrary, you receive the payments from the bank.

One more benefit you may consider when applying for a reverse home mortgage is that it can work as a financial shield. You can never be force to leave your home for as long as you live on it. You are just responsible to keep making the insurance and real estate payments.

A reverse mortgage biggest problem is its elevated fees. However, many seniors feel that the fees are well worthwhile if we consider than the alternative is loosing your home.

Before going ahead and applying for a reverse home mortgag, make sure you talk to an experienced reverse mortgage broker. A good reverse mortgage broker can help you answer any questions you may have and save you thousands of dollars in the process. 

Reverse Mortgage – less-costly versions.

Reverse mortgages are expensive.
Some local governments offer less-costly versions called deferred-payment loans. Generally, there are no origination fees; insurance premiums and closing costs, if any, are very low.
The interest rate on DPL is fixed, if it’s charged at all. And many programs charge simple rather than compound interest, so interest isn’t charged on interest. Some even forgive part or all of  the loan if you remain in the house for a specified period of time.
DPL aren’t available everywhere, and eligibility varies. Most are limited to homeowners with low or moderate incomes. And many limit the home’s value and location. Some have age or disability requirements.
Another public-sector alternative is a property-tax-deferral loan. Generally, it provides annual advances that can pay all or part of your property taxes. No need to repay it as long as you live in the house.
In some places, PTD loans are offered uniformly statewide. But in others, they are available only in only some areas, and they vary.
 Seniors may also be eligible for monthly supplemental security income (SSI) benefits if their cash and savings are less than $3,000 for a couple or $2,000 for an individual.
If you qualify for benefits, you might qualify for other public benefits that may delay reverse mortgage.
Also, by waiting, less of your equity will be eaten away by interest charges.

Retirees want to stay in their homes

Retirees largely want to stay in their homes and remain near familiar community and health care services rather than sell and downsize in a new area. But living expenses are rising.

Reverse mortgages, available for nearly two decades, have become increasingly popular as the population ages. More lenders are offering them as a result. Loan amounts are based on how long borrowers might live and how much home values will grow so there is equity remaining when the retiree dies, sells or moves.

90 percent of reverse mortgages are HECMs, which come with a Federal Housing Administration guarantee that protects the lender and the homeowner from falling property values.
If the loan balance exceeds the value of the property by any means the homeowner is fully protected by the [FHA] insurance policy that was paid for in the closing costs. If you choose a lifetime monthly payment, you will still receive a monthly check for life, even after the loan balance exceeds the property value.  You are responsible for the maintenance, property tax, insurance, and utilities.
Reverse mortgages carry higher costs up front than traditional mortgages and work best when a person lives in a home for a long time. Even the best reverse mortgages are expensive, the amount of equity that can be paid out is limited, and the risk of interest rate fluctuations reducing what heirs can inherit is sometimes greater than disclosed

It is beter to understand.

When you’re considering a reverse mortgage, understanding of the motivations of all involved and getting all information can help you make an informed decision. Reverse mortgage is a financial arrangement in which a senior homeowner takes a loan against his or her home equity.  

There are three things which all reverse mortgages turn home equity into:

    – Loan advances to borrower;

    – Loan costs paid to lender/others;

    – Leftover equity paid to borrowers/heirs at the end of the loan.

Compare any reverse mortgage by asking three simple questions:

          1. How much would the borrower receive?

          2. How much would the borrower pay?

          3. How much would be left at the end of the loan?

Actual figures will depend on three things:

               – Actual credit advances taken during the life of the loan;

               – Actual interest rates charged on the loan;

               – Actual changes in the home’s value during the loan.

 

RM -some situations

There are different types of reverse mortgages. While they differ slightly, they all share a set of common features. Here are some features that are common to all reverse mortgages:

– Unlike regular mortgages, you can for any reason choose to cancel the loan. But you must do it within three days of closing the loan. These three days are three business days, which do not include holidays. The cancellation, however, must be done in writing and sent by mail or fax. It cannot be done in person or over the telephone.
– The loan must be repaid when the last surviving borrower dies, sells the home or moves out. But there are other situations in which a lender can ask for full repayment before then. Those situations are:

– Failure to pay your property tax
– Failure to keep up your home
– Failure to insure your home

If any of these things happen, the lender can ask for full repayment early. As with regular mortgages, you can be considered in default if:

– You declare bankruptcy
– You donate or abandon your home
– You commit fraud or misrepresent yourself
– Your property is condemned

Refinancing your reverse mortgage

. Refinancing the original loan could be an option, but is it the best option?

The Department of Urban Development realized this problem and being keen for seniors to see refinancing as a viable option has changed the insurance so that it’s only the value differential that is liable.

If you only took out your original loan quite recently, or your home has not risen significantly in value, refinancing your original reverse option would not be a viable option.

If you think you qualify and believe refinancing your reverse mortgage is right for you, you should first go and talk to the broker you consulted originally. They will be in the best position to advise you on whether this is the best course of action for you.

If you took out the mortgage several years ago it’s more than likely that the value of your home has increased so there’s  be more equity to borrow against.

Even if you took out the maximum amount allowed with your HECM mortgage, you may find you can borrow more. This is because the Department of Housing and Urban Development reviews the maximum lending limits each year. Each year the maximum amount that can be borrowed has been raised. So, if you took out your loan several years ago and it was the maximum amount allowable, chances are you can go back and borrow more.

About HECM

Older adults and their children consider the likelihood of needing services, consider whether they would be available as a community service, figure the costs of providing needed services, decide whether you can save enough to pay for those services, and look into the possibility of long-term care insurance that provides in-home services.

 Some folks might be leaning toward a reverse mortgage to finance care in their old age. The most popular and most dangerous is Home Equity Conversion Mortgages – HECM reverse mortgage Loan. Its popularity is mainly because it is insured by the US government using the FHA insurance scheme. HECM stands for Home Equity Conversion Mortgages and is administered by the U.S. Department of Housing and Urban Development (HUD). This program is often called a HUD or FHA reverse mortgage.

While all reverse mortgages pay the borrower a given amount either in a lump-sum payment, a monthly payment or some combination of the two, there are still costs — such as closing costs — associated with taking out the loan. HECM costs usually are higher than other loans and require borrowers to pay a mortgage insurance premium (MIP) equal to 2 percent of the value of the home.

 HECM must be repaid in full when the borrower moves or dies. The lump sum payment includes all the peripheral costs associated with the loan, the principal, the interest and the MIP. If the housing market has slumped between the time you took out the loan and the house is sold, you or your heirs really may suffer.