Using a Reverse Mortgage Calculator

Using a reverse mortgage calculator is a great place to start if you are trying to see if you have enough home equity to qualify for a reverse mortgage loan. A reverse mortgage calculator will give you an approximation of your reverse mortgage loan amount eligibility.

Using a reverse mortgage calculator is the easiest way for senior homeowners to find out if they have enough equity in their home to qualify for a reverse mortgage. If you have been thinking about tapping into your home equity through this unique type of home loan, you might be wondering how much money you could actually get from your home and still continue living there without monthly payments.

The easiest way to get an approximate idea of what you might be able
to qualify for, is to utilize an online reverse mortgage calculator tool. A reverse mortgage calculator is very simple to use. You only have to input a couple of personal details into the reverse mortgage calculator and it will estimate approximately how much money you are eligible for.

The required details consist of your zip code, the dates of birth of all persons on the title to your home, what you think your home value is, and what your current mortgage balance is, if any. Once these details are entered, the reverse mortgage calculator will then show you the approximate loan amounts for several loan programs that you are eligible for.

FIXED INTEREST RATE VS. ADJUSTABLE

Each loan choice displayed by the reverse mortgage calculator will offer slightly different loan amounts because they have slightly different interest rates and margins. In most cases, the reverse mortgage calculator will also show you a fixed rate loan choice along with several adjustable choices. Sometimes there is a fairly large difference in the amount of money you can get from a fixed rate reverse mortgage versus an adjustable. Current market interest rates will dictate these differences.

INTEREST RATES AFFECT LOAN AMOUNTS

One noteworthy thing to keep in mind, is that interest rates are constantly changing with market conditions. Consequently, a reverse mortgage calculator must be re-programmed whenever interest rates change. Usually changes are made each Tuesday, if there has been a fluctuation in the indexed rates that these loans are tied to.

If you are using a reverse mortgage calculator, please be aware that it is strictly a tool for you convenience and will give you an approximation of how large a loan you might be able to qualify for. If the numbers provided from the reverse mortgage calculator are attractive to you, you will definitely want to take the next step and get a customized loan benefit summary from a lender. The summary that a lender can provide will be much more comprehensive and will be a more accurate presentation than what can be provided by a simple online reverse mortgage calculator.

The lender's benefit summary will provide a complete cost breakdown of the fees that will be involved in obtaining a reverse mortgage. It will also give you an amortization schedule so that you can estimate years into the future what the loan balance will be compared to your home value in later years. This is something that many people are interested in seeing because they want to know how a reverse mortgage will impact their estate over the long term.

START WITH A REVERSE MORTGAGE CALCULATOR

So if you are just starting to look into the possibility of getting a reverse mortgage, using a reverse mortgage calculator is a great first step. Because, if you are not even close to having enough equity in your home to qualify, you might as well find out right away and be done with it. On the other hand, if the reverse mortgage calculator displays numbers that you like, you will probably want to do further investigation and request a full blown benefit summary from a reverse mortgage lender.

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Affluent Using Reverse Mortgages to Take Advantage of Distressed Property Values

While we continue to hear about reverse mortgages as a last resort, more are turning to it as a tool for the affluent marketplace as a vehicle for advanced planning. Paul Savery, a reverse mortgage consultant with Wells Fargo told the Norwich Bulletin that some people are using a reverse mortgage to buy or improve a second home.

With housing prices at record lows, some wealthy homeowners are going bargain hunting with their reverse mortgage credit line as a way to close quickly on homes that are being sold at distressed prices.

The article also describes other strategies of how you can use a reverse mortgage as an estate-planning tool which is something that will eventually be more common, but so much attention being brought on people using reverse mortgages to purchase shady investment products, I was surprised to see the article.

What’s not clear is how long it will take until using a reverse mortgage as a financial tool rather than a loan of last resort becomes a reality. Thoughts?

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Banking, Money and Finance : Live Well Financial: Getting a Reverse Mortgage Online: Dos and Don’ts

(Prudent Press Agency)--- Looking for a company that handles reverse mortgages online is easy, just type in “reverse mortgages” in your search engine and the results that will come back to you are quite staggering. However, looking for a good reverse mortgage company online, such as livewellfinancial.com is quite a challenge, and there are many pitfalls that you should avoid at all costs.

Here is a list of dos and don’ts that can help you both find a very good and reliable reverse mortgage company, and at the same time avoid those thieves and scammers just trolling around cyberspace, looking to make a quick buck. True, these are sound, basic advice, but you’d be surprised just how many people can forget these things in the face of a really good deal.

DO: Scout around and canvass

Like when buying a car or looking for a good school for your kids, you won’t just get the first one that comes by. These are big decisions in life, and getting a reverse mortgage is also a big financial decision. You should look around the Internet, ask your local Better Business Bureau, or simply ask friends and family whether they can refer someone to you. Online, if a website has a lot of referrals and testimonials, like Live Well Financial, this can be a very good sign, however, it won’t hurt to still be a little careful with whom you do business with.

DO: Get all the needed information first

You never charge into a war without a loaded gun, and so you should never get into a reverse mortgage contract before making sure that you know what you need and what you’re getting into. Thieves and crooks will often use your ignorance to slip one over you, whether it is an unnecessary charge or consultation, so it’s best to come prepared.

Livewellfinancial.com will not only give you the basic information that you need free on their website, but should you have any other questions, you can either contact their customer support team online, or get a free financial counseling session from them.

DON’T: Give away sensitive information on the Internet

There are two pitfalls that you have to avoid when giving out sensitive information on the Internet, such as complete name, addresses, SSS numbers, credit card numbers and the like. Reputable company would never ask those kinds of information online, as there are a lot of hackers and cyber thieves out there who are great at extracting this kind of information, even if the data is encrypted and secure. Also, companies that ask for this kinds of information can be quite dicey, because there are times when they are really just hackers looking to make a quick buck off your credit card number.

Livewellfinancial.com is a site that requires you to become on-premises when you get a reverse mortgage to give your sensitive information. This is to ensure a quick and secure transaction between you and the company.

DON’T: Sign anything that you don’t understand completely

A lot of reverse mortgage companies employ a really old trick in the book. Use a lot of complicated jargon and terms to confuse the client, and then slip in a clause or two about very high fees, interest rates and other such things. Don’t ever put your signature on a contract that has even one part that you don’t understand, and always, always, always read the fine print.

Livewellfinancial.com offers you a service that is direct-to-the-point and very easy to understand, so that you know what you’re getting into, and what you’re going to get.

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Reverse Mortgages = Subprime? Unfortunate Comparison says HUD Economist

What seems like an increasingly negative impression of the reverse mortgage business - among some consumers, media outlets and government representatives - has several practitioners wondering what can be done to counter these beliefs - and who might take the lead in such an effort. One reverse originator reportedly has asked an industry trade association to collect special fees from members to mount a counter-offensive, including but not limited to a significant marketing campaign.

It seems that subtly yet powerfully, there even has developed a growing notion that the reverse mortgage business is akin to (now-discredited) subprime lending, which is blasphemed for a wide-range of ills, not the least sparking a worldwide recession.

“It’s an unfortunate comparison,” asserts Ed Szymanoski, noted economist with HUD, in conversation with RMD. He points out that the FHA, principal guarantor for nearly all reverse mortgages today, “has lot of protections built in.”

Jeff Foody agrees. He is corporate education liaison, EquiPoint Financial Network, and regards any equation of reverse mortgages to subprime as nothing more than “sensationalism. People fear what they don’t know,” he says. Foody figures reverse mortgages have been “obscure for some time, so it’s easy to make [false] comparisons.”

One secondary market trader adds that the two mortgage sectors are “not anything at all alike. Reverse is all government-based lending, no one can compete on LTVs, and the rates are floored,” he points out.

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Reverse Mortgages – What should you know before applying?

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping their home equity has become an attractive but potentially risky option. A reverse mortgage can turn your home equity into tax-free cash without forcing you to move or make a monthly payment. This can be a worthwhile financial tool if used in the right situations. If not, you can end up with serious complications to your financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms, including:
- A lump sum cash payment;
- A monthly cash payment;
- A line of credit;
- Some combination of the above.

To qualify for a reverse mortgage a borrower generally needs to own a home, reside in it as their principal residence, be at least 62 years of age, and have significant equity in the home. When the owner dies or moves away, the house can be sold, the loan paid off and any remaining equity value can go to the living owner or the borrower’s designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within a certain amount of time after the owner dies or moves away.

There are three basic types of reverse mortgages:
- Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;
- Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);
- Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. In general, older borrowers can borrow more but the amounts are capped by the maximum Federal Housing Administration (FHA) loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services or home improvements. Reverse mortgages have also been used to pay off a current mortgage or credit card debts. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines.

Here are some of the other things to consider:

- Reverse mortgages can be complex and risky: Borrowers should consider discussing the appropriateness of a reverse mortgage given their current financial situation and the other options available to them before applying for a reverse mortgage. Borrowers of HECMs are required to consult with a counselor from a HUD approved agency before they are granted this loan.

- Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages and home equity lines of credit in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance but they can run between $12,000 - $20,000 dollars. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

- Borrowers need to make sure they are not jeopardizing their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if a borrower’s total liquid assets exceed allowable federal limits, the borrower’s federal retirement benefits may be negatively impacted.

- Interest Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month.

- The mortgage can be called: The homeowner or estate always retains title to the home, however, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts if the borrower fails to pay the property taxes on the home, fails to adequately maintain the home, fails to pay the home insurance premiums, or changes their primary residence.

- Estate Planning Implications: Repayment of a reverse mortgage will impact the borrower’s estate and potentially reduce the asset being passed on to the borrower’s heirs. It is important to factor in the potential effects of a reverse mortgage on the borrower’s estate plan to ensure that the borrower’s estate planning goals are met.

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What should you know before your think about a reverse mortgages

The number of reverse mortgages backed by the government jumped nearly 20 percent in March and April alone from the same period in 2008. At a time when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net. But it can be a risky one.

If your parents are at least 62 years of age and have significant equity in their home, a reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a number of forms:

• A lump sum cash payment;

• A monthly cash payment;

• A line of credit (which tends to be the most popular option);

• Some combination of the above.

When the owner dies or moves away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for.

There are three basic types of reverse mortgages:

• Single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

• Home Equity Conversion Mortgages (HECMs) are federally insured reversed mortgages backed by the U. S. Department of Housing and Urban Development (HUD);

• Proprietary reverse mortgages are private loans that are backed by the companies that develop them.

The size of a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. The older a borrower, the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county.

Reverse mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise need cash for such things as long-term care premiums, home healthcare services, home improvements or to pay off their current mortgage or credit card greater than their income can support. More recently, though, they’ve become popular with individuals who see them as a better alternative to home equity lines. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes and evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

Elderly borrowers will have to consult with a HUD Counselor or financial advisor before they’re granted this loan – that’s one of the requirements. They should consider a Certified Financial Planner ™ professional to do this because reverse mortgages can be complex and risky. This step can be completed within the first few days of the process. The basic loan closing now takes place in about 30-40 days from the date of application. Generally the only out-of-pocket cost is an appraisal fee ranging from $300- $500.

Here are other things to consider:

Cost can be substantial: Reverse mortgages are generally more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed HECM loan finances these fees into the initial loan balance, and they can run between $12,000-$18,000. The loans are based on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.

They’ll need to make sure they’re not endangering their Federal retirement benefits: The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if their total liquid assets exceed allowable limits under federal guidelines, they might endanger your benefits. This is another critical reason to work with a financial adviser on this decision.

Rates can be higher: Reverse mortgages have rates that are typically higher than those charged on conventional mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month. Again, check the total annual loan cost.

Their mortgage can be called: The homeowner or estate always retains title to the home, but if they fail to pay your property taxes, adequately maintain their home, pay their insurance premiums, or change their primary residence, the lender can declare the mortgage due or reduce the amount of monthly cash advances to pay those overdue amounts.

The family needs to talk. If your parents’ house is their major asset, getting involved in a reverse mortgage may not leave much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why that in addition to discussing a reverse mortgage with a financial adviser, parents and their adult children need to talk with their family.

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Reverse mortgages growing in popularity

More than a year ago, Dee Lewis was struggling to afford her escalating property taxes, plus pay the mortgage on the small Glenville farmhouse where she's lived since 1982.

Lewis, now 64, had been considering a reverse mortgage, which allows senior citizens to tap into the equity of their homes, providing them access to money without the burden of monthly payments. The loan is repaid when the borrower sells the house or dies.

Last April, Lewis took the plunge, becoming one of a growing number of people to take advantage of the government-backed program.

Last month nationwide, there were 9,830 reverse mortgages endorsed by the Federal Housing Administration, which insures most of the loans. That's up from 9,484 loans endorsed in July of last year, according to the U.S. Department of Housing and Urban Development. In March, there was a national monthly record of 11,261 FHA-endorsed reverse mortgages, a jump of 17 percent from the same month in 2008.

Lewis borrowed about $230,000, a portion of which went toward paying off her mortgage and car. If Lewis were to sell her house now, she estimates she would owe about $200,000.

"If I pay both my property tax and my mortgage, I would have a couple hundred a month to live on," said Lewis, who works as a cook at Greenwich High School. "I really felt I didn't have any other option."

D. Steve Boland, senior vice president and reverse mortgage executive for Bank of America, said lenders have recently seen an increase in popularity in reverse mortgages because people's retirement accounts are losing money and people want to maintain their standard of living.

Also, as part of the economic stimulus package, the lending limit for reverse mortgages was increased from $417,000 to $625,500 through the end of 2009.

"Before, it was considered a last resort," Boland said. "Now, it's part of retirement."

Sara Cornwall, a Southport-based reverse mortgage specialist with Wells Fargo, said some people are taking out reverse mortgages to wait out the sluggish real estate market.

In order to qualify for a reverse mortgage, a borrower must be 62 or older, the home must be the person's primary residence and they must own the property outright, or pay off the existing mortgage with the proceeds from the loan.

Borrowers have four options, used in any combination, when taking out a reverse mortgage: They can take the money in a lump sum; get fixed monthly amounts for a set period of time; receive funds in equal monthly allotments for as long as at least one homeowner lives in the house; or have access to a line of credit.

Senior advocates say some people shy away from the program because they want to leave their home to their children. Lewis, a divorced mother of two adult daughters, said her children were supportive. In fact, Lewis' younger daughter lost her job earlier this year and moved back home, which she couldn't have done if Lewis had downsized to a one-bedroom condo.

Lewis had considered selling the house, which was valued at $1 million.

"I wanted to be there for my children," Lewis said. "In hindsight, I did do the right thing. Given the economy right now, if I had waited and put my house on the market, it wouldn't have been a good time."

There are also high closing costs involved, which include title insurance, attorney fees and an appraisal. They vary according to the value of the home, and can range from $15,000 to $18,000. Lewis's loan included $17,000 in fees.

The Federal Housing Administration, which insures most reverse mortgages, mandates that interested seniors receive financial counseling from a HUD-approved agency before getting the loan.

Should someone owe more than value of home at end of the loan, the FHA insurance covers that gap.

Richard Fisher, an attorney who works in the elder law and estate planning field for Cacace, Tusch & Santagata in Stamford, said seniors should explore their alternatives, such as getting a home equity loan, which doesn't have the high fees of a reverse mortgage and generally has lower interest rates, or selling the house and moving to a smaller accommodation.

One concern is that some financial professionals have been aggressively marketing investments to seniors for their reverse mortgage proceeds, such as deferred annuities, that are inappropriate for many older people because they tie up retirement savings, but Fisher said none of his clients have run into that.

Christina Crain, director of programs for the Bridgeport-based Southwestern Connecticut Agency on Aging, has worked with seniors who have taken out reverse mortgages, and advises people to take a close look at their situation before going forward.

"I think people really need to do their homework, go and talk to multiple lending sources and do their own research," Crain said. "I think the important thing is people ask a lot of questions and know all the costs up front."

Reverse mortgages can be good for seniors who want to stay in their homes, and don't have family members to help financially support them, Crain said. But, they're not for everyone, such as seniors who want to leave their home -- without the burden of paying off the loan -- to their children or grandchildren. The loan also could affect a person's eligibility for need-based programs, such as Medicaid.

"It's really a personal decision," Crain said. "I think it is a good option for some people. I think people should at least explore it as an option because for some people it could be a way to remain in their homes and get the resources they need.

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Reverse Mortgage Subsidy or Principal Limit Factor Reduction?

On a daily basis, we hear about the economic crisis and the hardships plaguing our country, from the loss of jobs, to high unemployment rates, crashing property values and companies closing up shop. It’s disconcerting to say the least. What I find to be more disturbing is that our lawmakers would reject a $789 million dollar subsidy to FHA for the HECM product, a product which actually helps our seniors during such tough times to get cash from the equity in their homes and maintain independence. Instead, the House recommends FHA reduce the principal amount a senior can borrow.

In these tough times, it is bad enough that our aging population has lost astronomical amounts in sustainable income through investments, to now have appropriator’s in the House rejecting the subsidy and offering up recommendations that only add to the hardship. What message does that convey to the people of our country? That our government is willing to hand out stimulus monies to companies or to other subsidy requests that have no bearing or impact on our current crisis, but not to a program designed to help our aging population, a protected class.

Since the inception of the HECM product in 1989, FHA has operated on a negative (positive profit) subsidy until now. Perhaps as an alternative solution, offer up a recommendation that would help our seniors during such hardships. For instance, paying the $789 million subsidy and recommending that FHA come up with a plan thereafter to conduct any necessary annualized analysis that would decrease the principal limit factors based on any economic shortfalls with the HECM product for sustainability.

Let me be clear when I say that I am not opposed to a reduction in FHA’s principal limit factors for HECMs, I see value in doing so in the future. As for now, I feel this not the time to implement such a process for the aforementioned reasons.

My views are shared with many when I state that we would like to see our government take a different position and change the message they are currently sending to the public. There benefits to the reverse mortgage product are numerous, it seems however, this understanding has not been fully embraced by all members of the Legislative Branch. I feel it would be a great discredit to our senior population to have uninformed decision making and comments result in repercussions adversely affecting perspective reverse mortgage borrowers who could truly benefit from the product.

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Reverse Mortgages Climbing, So Are Scams

Many of us are aging and finding that has affected our savings, investments, and income, and is putting pressure on our daily living expenses. Should you use your home’s equity to pay those bills?

When you buy a home, most people get a loan. Later in life, you may have paid off the mortgage on your home or have substantial equity in the home with a small mortgage balance. This equity has value and can be used in various ways to help pay unexpected or regular expenses.
Reverse Mortgages

The reverse mortgage is not a new financing tool. It is said that they were first used 50 years ago.

Before applying for a reverse mortgage, the most popular is the federally insured Home Equity Conversion Mortgage (HECM), you should do your homework or spend some time with an independent financial counselor to determine which plan (there are several) is best for your situation. American Association of Retired Persons (AARP) and other reputable organizations also provide information and services that can be of value in making this decision.

A reverse mortgage allows you to use your home's equity as security for an equity line of credit—an increasing mortgage, but have no payments with a rate of interest usually lower than using other types of financing. Sounds great doesn’t it!

There are several major drawbacks to this type of mortgage. Like mortgage loans used to buy a home, reverse mortgages are also very costly. This is an area that should be carefully investigated. There are also limits to how much equity you can use, depending on interest rates, your age, and how much money you need during the early years of the mortgage.

All interest and principle is payable when the borrower(s) deceases or is no longer living in the home. Make sure to review with your tax preparer any regulations that may affect your ability to use this type of mortgage.

The current median age for people using these reverse mortgages is around 74 years according to a report from AARP.

Before the recent collapse of the mortgage market, new reverse mortgage originations were growing in number annually. FHA has continued to insure these mortgages to make them attractive to those companies that buy them. Fannie Mae (Federal National Mortgage Corporation), the mortgage giant was the main purchaser of these mortgages, but its future remains unclear. This may affect interest rates as well as other factors.

Mortgage rates are currently low and provide an excellent opportunity for this type of mortgage.
Reverse Mortgage Scams Are Increasing

Many homeowners over age 62 are vulnerable to reverse mortgage scams because they do not understand all the factors involved in this type of transaction. This has become an area of concern for regulators.

Many low-cost federally insured HECM providers are city and state governments. Many banks and other providers of these loans are also very reputable, but there are companies or representatives that take advantage of unknowing customers.

The FBI reports that there are numerous scams by “unscrupulous professionals” to take advantage of people. Read the FBI/HUD report to the public on this matter.

Reverse mortgages are not for everyone. Each family’s situation is different. Become informed and consider carefully all alternatives before proceeding.

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Reverse Mortgage Insider Has Some Advice for Senior Citizens on Using These Loans

July 31, 2009 - I was contacted recently by a freelance writer who wanted to get some dirt on reverse mortgages. He said he could find people all over the place who could sing the praises of the reverse mortgage, but he wanted to find someone who could give him the pitfalls and things to watch out for. This got me thinking…there are a number of times I do not recommend the usage of a reverse mortgage and there are several things to watch for, but I would not necessarily call them “pitfalls.”

A reverse mortgage is a complex financial transaction and it is not an inexpensive loan, but when used correctly and under the right circumstances, it can greatly enhance the lives of the senior borrowers who obtain one.

So my advice to senior borrowers revolves around education and not the ominous “beware” tone that it appeared this writer was prepared to take.

Choose Option to Meet Need

First, I say to borrowers, "Choose the correct option to meet your needs."

Borrowers can choose a fixed rate or an adjustable rate and fixed rates sound great, but they are what is called a “closed end instrument” and require the borrower to take the entire loan at the very beginning of the transaction.

For borrowers who are paying off an existing mortgage and need all their funds to pay off the current loan, this is no problem. For a borrower who has no current lien on their property or a very small one, this would mean that they would be forced to take the entire eligible mortgage amount on the day the loan funds.

This might give a borrower $200,000, $300,000 or more in cash from the very first day that they do not need at the time and on which they are accruing interest. This can also have an adverse affect on some seniors with needs-based programs.

Seniors on Medicaid and some other needs-based programs would impact their eligibility by having the sudden addition of the liquid assets and the senior would wind up funding their own Medicaid with the equity in their home.

For these seniors, a careful consultation with family members and a financial counselor is advised to be certain that they chose an option such as the line of credit where funds can be made available to them during times of need, but they never have excess funds sitting in accounts to affect their eligibility.

A borrower who is planning on using only a portion of their funds monthly need not pay interest on the entire amount from the very start, eroding the equity unnecessarily fast. An adjustable rate will accrue interest at a much lower rate at today’s rates, but has a 10% cap and can go much higher if rates rise in the future. However, the adjust rate program allows for more options for borrowers to receive their money.

They can choose a lump sum; a line of credit against which they can draw at any time and which cannot be frozen like many of the bank Home Equity Lines of Credit (HELOC’s) are going through now and which grows on the unused portion annually; a monthly payment for a set term or for life; or a combination of all of the options. The adjustable rates are currently much more flexible to meet borrowers’ needs.

One of the things that can determine the amount for which borrowers will ultimately qualify is the rate at which the loan accrues interest. When the margins on the adjustable rates were lower and the fixed rate was higher, the adjustable rates gave borrowers more money in their pockets in the form of eligibility.

Now, most borrowers we run through the reverse mortgage calculator receive more money on the fixed rate program. This is extremely important to know if you are trying to get as much as possible to pay off an existing lien. It also means that the higher the margin, the less money the borrower will receive and the faster interest on the loan will accrue.

So the thing to look for in a reverse mortgage here is definitely the rate on a fixed rate or the margin on an adjustable rate that is being quoted.

Watch for Fees Being Charged

Another thing seniors need to look out for in their reverse mortgages is the fees being charged. The fees are highly regulated by HUD and therefore, the lenders cannot charge fees like processing fees, administration fees and things like that, but there are some things borrowers can watch to help themselves!

First is the servicing fee. The amount of the servicing fee will determine the servicing set aside, which ultimately determines how much money goes to the borrower.

The servicing fee set aside is not a fee at the time you close your loan, it is money that is not made available to you and is left in the equity of your property that is meant to go toward the payment of the monthly servicing fee.

On a regular or forward mortgage, you don’t see this fee, you simply pay anywhere from .25% to .50% higher rate which goes to the servicing company and is built into the rate you pay.

Reverse mortgages use a flat dollar amount instead, and the set-aside is determined up-front due to the fact that the balance of the loan is increasing, not being paid down by the borrower.

The maximum origination fee is set by HUD, but they do not require every lender to charge only the maximum! Check around and see if you might be able to get a better origination fee.

Watch for Long-Term Annuity Pitches

Finally, one of the biggest things for seniors to watch out for with their reverse mortgage has nothing to do with the actual mortgage at all…it’s becoming aware that there are those who are going to try to get you to part with your money!

Do not consider investment strategies which include long term annuities which will not allow you access to your funds for long periods of time without penalty.

Be wary of reverse mortgage originators who seem overly-anxious to help you invest your loan proceeds. Always remember that this is your home equity and with some careful stewardship, it should take care of you but if not guarded, can be taken away, leaving you with a loan on your home and nothing to show for it.

It seems most of the time I see a “reverse mortgage horror story” it is usually due to what happened to the money and not the reverse mortgage itself. With some careful planning by the senior borrowers, getting the family and/or a trusted financial advisor involved and knowing what to watch for, a reverse mortgage can be a viable retirement tool for many borrowers.

It’s just a matter of making sure you put the seniors’ best interest first and knowing what to look out for when doing reverse mortgages for senior homeowners that keep those horror stories from happening in the first place.

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Seniors should know all about reverse mortgages

As reverse mortgages become more popular, seniors need to understand how these loans work. Counselors for Consumer Credit Counseling Service (CCCS) of East Tennessee, a member of the CredAbility Network, which is one of the nation's largest nonprofit reverse mortgage counseling agencies, say homeowners often have misconceptions about major features of these loans.

CCCS is one of the leading nonprofit counseling agencies in the United States with housing counselors who are certified in reverse mortgage counseling. The agency helps homeowners by providing objective information about reverse mortgages, including the advantages and disadvantages, so a homeowner can decide if this loan is right for them.

"Reverse mortgages can provide needed additional funds for senior citizens on fixed incomes," said Daru Burdge, president of Consumer Credit Counseling Service of East Tennessee (CCCS). "But they aren't for everyone. Understanding the benefits, the risks and the costs involved is an important first step when considering a reverse mortgage."

Below are some important facts about reverse mortgage loans:

A reverse mortgage is a rising debt, falling equity mortgage.

Homeowners often believe there will still be plenty of equity remaining when they pass away, and that they will be able to leave money to their heirs. While that may be true, it's also possible there will be no equity remaining as the rising debt wipes out the remaining equity. This most often occurs when the homeowner lives to their normal life expectancy or beyond. In addition, homes may not appreciate and interest rates on an adjustable rate loan can rise and be higher than expected. These factors can cause the balance on the loan to equal, or even exceed, the equity in the home.

A reverse mortgage loan may include higher closing costs than a forward mortgage.

While closing costs are financed as part of the loan, these costs reduce the home's equity and leave fewer funds for the homeowner. For all Home Equity Conversion Mortgages (HECM), borrowers are charged a mortgage insurance premium. Approximately one-third to one-half of the amount of the closing costs is to pay for FHA mortgage insurance.

Counselors explain to the homeowner that if they plan on selling their home within a short period, a reverse mortgage may not be a good use of their equity. Our counselors provide a HUD-approved Total Annual Loan Cost analysis (TALC), which expresses the average annual cost of a reverse mortgage at four future dates. The average cost becomes lower the longer the loan is in effect.

A surviving spouse younger than 62 years old automatically keeps the house once their spouse passes away.

A person must be 62 years old or older to qualify for a reverse mortgage. Some couples include one person who is younger than 62 at the time of the reverse mortgage application. In this case, the younger person must be removed from the deed for the older person to receive the reverse mortgage.

The surviving person younger than 62 years old, however, may be allowed to keep the house when their spouse or partner passes away. Once the older person passes away, the reverse mortgage must be paid back. The surviving person has the option to sell the house, refinance the balance with a forward mortgage or, if age 62 or older at the time of the death, refinance the old reverse mortgage with a new reverse mortgage and take advantage of any increase in the home's equity.

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