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A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free cash without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes a lump sum cash payment or monthly payments to you. Below are several examples of how a reverse mortgage can help; answers to some common questions and myths and truths about reverse mortgages. #1: Mrs. Adams, a 70 year old widow has a $240k townhouse, but has a $130k mortgage on it, as well as a HELOC balance of $20k. The monthly mortgage payments and medical bills are a struggle and she fears of losing her home to foreclosure or bankruptcy. The reverse mortgage solution is for Mrs. Adams to do a reverse mortgage and receive $160k to pay off her current mortgage and HELOC and live in the home, mortgage free for the remainder of the time she lives there. #2: Mr. and Mrs. Smith, aged 70, own a nice two story colonial home, valued at $200k that will not suit their mobility needs in the future. The Smith's have found a nice one-level townhouse that will suit their future needs, but it is valued at $300k. The reverse mortgage solution will allow the Smith's to sell their home for $200k, purchase the townhouse with a reverse mortgage purchase, with no monthly payments and will only have to bring around $100k to closing. The remaining tax free $100k is theirs to keep. #3: Mr. and Mrs. Jones, both aged 70, have decided to divorce after many years of marriage. Mr. Jones wants his portion of the equity in their house and Mrs. Jones wants to remain in the home. Since they own their $300k home or have a small amount left on their mortgage, the reverse mortgage solution will solve their dilemma. The Jones will receive $200k and Mr. Jones will receive his negotiated portion of the proceeds and Mrs. Jones will receive her negotiated portion and live in the house without any mortgage payments. #4: Mrs. Hall, a 70 year old recent widow is struggling with medical bills and a deteriorating house that needs significant repairs that she can't afford. She has discovered a lovely one level home that will suit her needs for many years. The problem is that Mrs. Hall can sell her house for only $150k and the new house is $300k! The reverse mortgage solution will be for Mrs. Hall to sell her house and do a reverse mortgage purchase on the new house. Mrs. Hall will be able to put down only $100k and live in the new home, without a mortgage payment. The $50k extra tax free proceeds from her current house can be invested and the interest will help towards paying her bills or any purpose she desires. #5: Mr. and Mrs. Miller, both aged 62 are youthful seniors who have great home worth $400k. They have envisioned spending their winters in Florida and they realize there are some great deals now. The situation is that the Miller’s still owe $100k (and a monthly mortgage payment) on their home and can’t qualify for a new loan on a Florida property. The reverse mortgage solution will be for the Miller’s to do a reverse mortgage on their home, receive around $250k, pay off the $100k mortgage and use the $150k to purchase the Florida home. Common Questions: What If I Have An Existing Mortgage?
Counseling is one of the most important consumer protections built into the program. It requires an independent third-party to make sure you understand the program, and review alternative options, before you apply for a reverse mortgage. You can seek counseling from a local HUD-approved counseling agency, or a national counseling agency, such as National Foundation for Credit Counseling (866-698-6322), Money Management International (877-908-2227), Consumer Credit Counseling Service of Greater Atlanta (866-616-3716) and National Council on Aging (800-510-0301). Counseling is required for all reverse mortgages and may be conducted face-to-face or by telephone. By law, a counselor must review (i) options, other than a reverse mortgage, that are available to the prospective borrower, including housing, social services, health and financial alternatives; (ii) other home equity conversion options that are or may become available to the prospective borrower, such as property tax deferral programs; (iii) the financial implications of entering into a reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower’s eligibility under state or federal programs and the impact on the estate or his or her heirs.
No monthly payments are due on a reverse mortgage while it is outstanding. The loan is repaid when you cease to occupy your home as a principal residence, whether you (the last remaining spouse, in cases of couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of your home. Furthermore, if the home is sold and the sales proceeds exceed the amount owed on the reverse mortgage, the excess money goes to you or your estate.
Because of the upfront costs associated with a reverse mortgage, if you intend to leave your home within 2-3 years, there may be other less expensive options to consider, such as home equity loans, no-interest loans or grants that may be offered by your county government or a local non-profit to repair your home, or a tax deferral program, if you're having problems paying your property taxes. Also, if you want to leave your home to your children, then you should consider other options, because in many cases, the home is sold to pay back a reverse mortgage. I cannot believe that this one is still out there. The reverse mortgage is just that…a mortgage. You do not give your house to the bank. You do not sell your house to the bank. The senior retains title to the property and can even sell the home at a later date if they choose. They must continue to pay real estate taxes, homeowner’s insurance premiums, and condo fees, if applicable, just as they normally would. 2) If you use up all your money, your heirs will be left with a big bill to pay. Reverse mortgages of today are “non-recourse” loans and the senior or their heirs cannot be left with a debt when the home is sold. This provision is one of the biggest safety nets of the reverse mortgage programs of today. It means peace of mind for the senior as well as the other family members who may be selling the property in the future. 3) The reverse mortgage is a very complicated loan. Nonsense! It is a very easy to explain transaction when handled by a reverse mortgage expert who has made it their mission to become fully educated on the products available in the marketplace. You should always work only with a reverse mortgage consultant who is well versed and can answer all your questions to your satisfaction. If not, ask for a referral from friends or others that you trust. And be sure to include a trusted advisor in your meeting with the reverse mortgage consultant. With so many seniors doing reverse mortgages today, you are bound to find someone you know who has had a very positive experience. 4) If you have a mortgage on your property, you cannot get a reverse mortgage. This is not only incorrect, I find that the majority of my clients do have an existing mortgage and getting rid of that monthly payment burden is the goal they have in mind when they first call me. During our initial consultation, they are quite relieved when I explain that the reverse mortgage proceeds are indeed used to pay off any existing liens. 5) If you get a reverse mortgage, you cannot leave your house to your children. With a reverse mortgage, the homeowner retains title to the property. So if the intent is to leave the home to children or others upon the death of the borrower that can be stated in the will. You can also consult with an elder law attorney to be sure that your wishes are stated just as you want. The reverse mortgage does not prevent a senior from leaving the home to heirs. To the contrary, I often find that in the course of the reverse mortgage process, the family will come together and discuss these very issues. 6) If you take out a reverse mortgage, your kids will be against it. Nothing could be further from the truth. With very rare exceptions, the children are 100% in favor of Mom and Dad taking out a reverse mortgage. The idea that the children are counting on getting a “free and clear” home as part of their inheritance is just not the case. Instead, the children are relieved that Mom and/or Dad are able to stay in their own home which often holds many memories for the entire family and that they will have the ready cash to meet expenses. With families spread out all over the country, I hear comments like, “I’m glad that Mom will be able to hire someone to take care of the yard and clean out the gutters. Since I do not live close by it is difficult for me to help her. But now I know she can pay someone to do these chores.” Or, “We were going to move Dad to assisted living in Boston so he could be near us but he didn’t want to leave his friends and activities in Richmond where he has lived for so long. With a reverse mortgage he can pay for someone to help with the upkeep on his home and we know he has the money to pay for his medicines. ” Call TODAY to get the facts from a reverse mortgage specialist who has the knowledge and the expertise to present the information needed to make the appropriate decision. Helping a senior make the most of their retirement years is just what this product is meant to do, and has done for thousands and thousands of reverse mortgage clients who tell happy stories indeed.
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