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.

Source

GERRY KRAMER: Reverse mortgages have appeal for seniors

Depressed home prices, low mortgage interest rates and an $8,000 tax credit for new home purchases have done little to spur the housing market. The glut of homes for sale, stricter terms to qualify for a mortgage and a cautious attitude toward committing to higher expenses in a continuing recession have acted as offsets to the incentives. Yet one area of strength in the mortgage market is that for reverse mortgages. Because there is a minimum age requirement of 62 to qualify for this product, its appeal is only to seniors.

A reverse mortgage simply allows the owner of an existing home that has equity (value above what is owed on any existing mortgage) to borrow against that value. This is not an equity line of credit. That product is in short supply these days, down some 70 percent from last year. In a reverse mortgage, the lender takes “effective” ownership of the home so that when the owner dies or sells the house the loan is automatically repaid from the proceeds of the sale. For this, the owner gets cash up front or a line of credit.

For example, suppose a home has no mortgage on it and is worth $200,000. A reverse mortgage can provide the home owner with up to $160,000 in cash or credit line.. This represents 80 percent of the equity value, generally the limit banks will accept. The actual amount provided will be less, however, because of interest charges over the loan’s life added to the principal amount owed so that the total continues below the 80 percent upper limit.

But that’s not all. The lender will charge a fee for the reverse mortgage in addition to interest. Fees can run as much as 10 percent of the home’s value, reducing further the actual amount of cash or line of credit. Also, falling home prices can make the home value appraisal difficult.

Still, a reverse mortgage can make sense for the retired individual with little or no savings other than the value of the home, especially in a market where selling to maximize cash value is a slow process. Just make sure all the costs, fees and obligations are understood.

Source

Seniors seek relief in home equity

SALISBURY -- More than 70 million people in the United States turn 62 over the next five years -- a market of baby boomers becoming eligible for a housing loan program that puts instant cash in the hands of elderly homeowners who borrow against the equity in their home, and don't have to repay the loan right away.

The reverse mortgage program has been around for years, but the recession and flood of boomers are drawing new attention among cautious regulators who worry borrowers could get in over their heads and aging homeowners jump at the chance for money they can delay repayment.

The federally guaranteed home equity conversion mortgage, or HECM, requires no credit score or income level, extending an opportunity for a reverse mortgage line of credit to aging borrowers who wouldn't qualify for a home equity loan, says Chuck Morse, a reverse mortgage consultant at MetLife. The borrower doesn't repay the loan as long as they live in and maintains the home.

A relatively new federal guideline that allows qualifying borrowers to use reverse mortgages toward the purchase of a principal home -- an option known as reverse purchase -- also spawns new interest, Morse said.

Rules are complicated, and sometimes incomprehensible, especially for the elderly, regulators say. By 2008, the program had grown more than 14 times in seven years, to 112,148 loans endorsed by the Federal Housing Association, from 7,757 in 2001.

"It's not just for people who are desperate; it's for people who want to make a good business decision," Morse said. "The baby boomer generation is starting to come of the age to qualify. They're like a pig going down a snake's belly; they're coming down the forefront now."

Counseling is available to educate and protect borrowers, and required for borrowers who take loans on their home equity in a lump sum, he also said. Among expert counseling services on the Eastern Shore are Neighborhood Housing Services and MAC Inc., both in Salisbury.
More money

MetLife and Bank of America are among industry leaders with reverse mortgages, said Morse, who says he also educated clients on the cash-for-equity program at Bank of America. "You don't sell reverse mortgages; rather, you educate people on the product," Morse said.

The federal stimulus package adds funds that raise the maximum claim amount, which sets the maximum reverse mortgage loan on home values in a region. In Wicomico County, for instance, the maximum claim amount for a home was about $250,000.

With stimulus money fueling the pot, it's now up to $625,500 in the county and nationwide -- theoretically giving a homeowner has more equity to borrow more. "On the Eastern Shore, (the maximum claim amount) has more than doubled," Morse observes.

According to HousingWire.com, a special senate committee on aging heard testimony last week on the benefits and drawbacks of reverse mortgage products available to seniors.

In Kansas City last week, Missouri Sen. Claire McCaskill expressed concern about fees associated with reverse mortgages, saying they can be excessive, reported the Kansas City Star. She also said that agents for lending companies marketing the products could be overly aggressive.

Mathew Scire, director of the Government Accountability Office's financial markets and community investment team, has testified that reverse mortgages are complex and costly for vulnerable market of homeowners. He points to literature presented by a company on reverse mortgages, calling a phrase that promises a "lifetime income" potentially misleading.

According to the Reverse Mortgage Lenders Association, the cost for required counseling is estimated at between $16 million and $18 million this year, although Congress allocated $8 million. Underfunding could mean a shortage in the number of counselors as the number of borrowers grows, according to association president, Peter Bell.
Heirs

He added, though, that a poll of state's attorneys, bank regulators and the Federal Trade Commission found few complaints, and that safeguards are in place to prevent fraud.

The beauty of the program is that borrowers don't have to repay the loan as long as they live in the home and pay property taxes and maintain upkeep, said Morse, who lives in Easton. "If the borrower moves to nursing home permanently, the note's due," he said.

Oftentimes, children of homeowners are upset to learn their parent borrowed on the equity of a home, Morse said. "The money has to be paid back at the end," he said. "Then the children get upset; they see their parents spending their inheritance."

Morse said while closing costs on a reverse mortgage "are fairly expensive," the program could be a good fit for some. Maximum loans typically equal about two-thirds of a home's equity, Morse said. Both fixed and variable rates are available on loans that are formulated by the age of the borrower and property value, he said.

"The key is to help seniors to age in place," Morse said.

Source

Reverse mortgage can help seniors buy new home

Americans have learned a tough lesson: Your home is not your piggy bank. However, there is a reward for those who did build equity in their homes: In their senior years, their home can provide a monthly stream of tax-free income, or a lump sum of cash to spend as they wish, while remaining safely in their home. Or it can provide a source of financing for a new, smaller home.

It's all done through a reverse mortgage.

For many seniors, a reverse mortgage is the answer to a prayer. It allows you to withdraw money from your home equity, tax free, with no requirement that it be repaid until you die or move out of the home. There is no way you can be forced out of your home as long as you keep paying your property taxes and insurance and maintain the property.


What you need to know about reverse mortgage for buyers, sellers
• Reverse mortgages are mostly viewed as a way to allow seniors to stay in the homes they love but can no longer afford. That monthly reverse-mortgage check can make all the difference when it comes to covering costs. But a reverse mortgage can also help seniors buy a new home.

• These days, many seniors are having trouble selling their current home and downsizing to a smaller home. And others, just entering retirement, are having difficulty financing the purchase of a new home, since they no longer have an income and don't want to put all of their savings into the purchase.

Here's where a reverse mortgage can help both buyers and sellers.

• Just go to www.Reverse Mortgage.org and use the calculator there to see the dollar amount of reverse mortgage you would qualify for, based on your age.

• For example, a 65-year-old could likely get about $240,000 on a reverse mortgage on a $500,000 home. That means a senior who wants to buy your existing $500,000 house needs to come up with only $260,000.

• The reverse mortgage would provide roughly $240,000 of the purchase price, with no monthly payments required. Now your old, larger home becomes more salable to someone with cash from the sale of an existing home.

• And once your home is sold, you can take part of the $500,000 sale proceeds, and use it -- along with some of your cash and your own reverse mortgage -- to buy your next, smaller retirement home. So, if you're age 75, and want to purchase a $350,000 condo, you could likely get a $230,000 reverse mortgage on that smaller condo. That means you'll have to put down only $120,000 in cash on your new condo, and you can put the remaining $380,000 from your home sale in the bank (or several banks).

Using a reverse mortgage to buy a home opens an entirely new dimension to this fascinating product.

Source

More seniors turning to reverse mortgages

When Judy Kralik and her husband, Andrew, downsized and moved to Valparaiso in 2005, she thought life would be easier.

But when her husband of 47 years died from esophageal cancer less than a year later, things got tough: her income did not comfortably cover her mortgage and other living expenses.

"Our income just really went down, and I was on Social Security," Kralik said.

Kralik, 69, turned to a reverse mortgage to get the extra money she needed. She now receives a check each month for about $435 that will continue for the rest of her life.

Like Kralik, more seniors are using reverse mortgages to tap into their home equity and pay off debt. Reverse mortgages allow the borrower to receive income in monthly installments, a lump-sum payment or a line of credit from which the borrower can make periodic withdrawals.

The loan becomes due only when the property is sold or the youngest borrower on the mortgage dies, and the house is used as collateral for the government-insured loan and interest.

Mortgage brokers such as Bob Allen say reverse mortgages have become part of a "normal retirement plan."

"The reasons people take them out are as varied as people's lives," said Allen, who also has a reverse mortgage.

Statewide, the number of reverse mortgages rose 20 percent from 669 in 2008 to 803 this year. And nationally, reverse mortgages -- known as Home Equity Conversion Mortgages -- jumped 5 percent from 73,875 to 77,908 during the same period.

When Allen saw his 401(k) plummeting, he knew something had to be done. Upon retiring at 65, Allen and his wife, Zeta, got a reverse mortgage on their five-bedroom Hobart home and are now receiving $518 a month to supplement their retirement income.

Loan amounts are largely based on the borrower's age, home value and current interest rates, and the home must be the primary residence. There are no income requirements, and Congress increased the maximum home value that is considered from $417,000 to $625,500, making reverse mortgages available to more homeowners.

Source

More seniors sign for reverse mortgages

More senior Australians are taking out reverse mortgages to pay down debt and secure an income in retirement, a study finds.

Reverse mortgages, whereby outright home owners borrow against the equity in their homes, were launched in Australia earlier this decade and are sold primarily through financial planners and brokers.

Chief executive of the Senior Australians Equity Release Association of Lenders (SEQUAL) Kevin Conlon said the funding of reverse mortgages was becoming more challenging given financial market conditions.

However, SEQUAL was backed by the major banks and non-bank lenders that were well placed to meet the funding demands for the sector, he said.

The $2.5 billion market posted a 23 per cent in the number of reverse mortgages nationwide last calendar year to 37,500, said Deloitte Actuaries and Consultants.

Lump sum payments accounted for 97 per cent of drawdowns, with settlements reaching $141 million in 2008, Deloitte said.

The average reverse mortgage size is now $66,000, although that average rises to $74,300 for single women.

Couples account for almost half of all new loans, with the average age of borrowers 74 years, Deloitte said.

Deloittes spokesman James Hickey said debt repayment, home improvement and retirement income continued to be the top reasons for seniors taking out a reverse mortgage.

Buying a car was the next most common reason, followed by the need for funds to pay for aged-care services.

Fixed rate loans comprised 28 per cent of all settlements in the first half of calendar 2008 and dropped to 10 per cent by December 2008.

The past 12 months had seen a decline in the number of borrowers seeking a fixed rate mortgage in line with lower interest rates.

Source

Advice To Seniors Considering The Reverse Mortgage

Leading Expert Offers Tips On What You Need To Know

ONTARIO, Calif., April 21 /PRNewswire/ -- Today's senior citizens have spent their lives building a family nest egg to ensure they can pay the bills after they retire. Despite the diversification in their portfolios, losing nearly half of their life savings has put older Americans in a panic about their financial futures.

(Photo: http://www.newscom.com/cgi-bin/prnh/20070717/NYFNSC02)

Although seniors live robust lives, well into their nineties, many are worried they do not have 20-30 years to recover their lost savings. With talk of deflation and predicted hyperinflation it is prudent for our parents and grandparents to consider the next steps to remain financially independent through the coming years, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer. See www.darrasnews.com.

"The increasingly popular reverse mortgage has been shopped by lenders and targeted to homeowners over 62. This is a special mortgage that lets seniors convert equity in their homes into cash," says Darras. "This may be a viable option but it is not without risk."

Here is how it works:

Today's reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allow senior citizens to tap home equity and not have to make monthly payments. According to HUD, the HECM is considered a safe plan that helps senior citizens have greater financial security. See http://tinyurl.com/q4o97.

"It pays to be very careful," warns Darras. "Even when the government is promising a reverse mortgage is a safe bet, there is a lot to know and it is important for folks to examine the fine print."

There are costs associated with an HECM. The lender can charge up to $2500 in origination fees and although capped at $6000, that is a lot of cash to come up with on a fixed income. Rolling that fee into the reverse mortgage can be painfully expensive. In addition, you will be charged closing costs, Mortgage Insurance Premiums, servicing fees and interest, says Darras.

"Make sure you crunch all numbers and after you see the upfront costs and remember, you are still responsible for property tax and hazard insurance. Work with a trusted advisor to uncover all potential expenses and the trappings of a reverse mortgage," says Darras.

Most importantly, don't let fear and the lure of an easy solution drive your decision. Even though new legislation and lower interest rates promise to make it less expensive to borrow, it can cost you in the long run, if you are not careful, says Darras.

"No matter what, the loan will have to be repaid somehow, in full. Usually that occurs when the homeowner dies. Understand other restrictions could cause premature payback of the loan so make absolutely sure you know what you are signing," says Darras.

Source

Reverse mortgages good option for some seniors

That Ralph and Plum Smith bought a house last month in Brookings, Ore., is not terribly remarkable, at least not until you learn that he's 84 and she's 77. But what is even more noteworthy is that the couple didn't pay cash for their new $240,000 home, yet they will have no mortgage payments.

The Smiths are among the first seniors in the country to close on a Home Equity Conversion Mortgage (HECM) for purchase, a form of federally insured reverse mortgage authorized by Congress in the Housing and Economic Recovery Act of 2008. The law took effect Jan. 1. The program is aimed largely at people 62 years or older who want to move down the housing ladder. The idea is to allow them to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction.

The Smiths don't fit that profile. But then Monte Howard, director of Affinity Marketing for Generation Mortgage, the Smiths' reverse-mortgage lender, believes it will be the nation's burgeoning legion of seniors, not the lending community, "who are going to teach us how this product really works."

That Ralph and Plum Smith bought a house last month in Brookings, Ore., is not terribly remarkable, at least not until you learn that he's 84 and she's 77. But what is even more noteworthy is that the couple didn't pay cash for their new $240,000 home, yet they will have no mortgage payments.

The Smiths are among the first seniors in the country to close on a Home Equity Conversion Mortgage (HECM) for purchase, a form of federally insured reverse mortgage authorized by Congress in the Housing and Economic Recovery Act of 2008. The law took effect Jan. 1. The program is aimed largely at people 62 years or older who want to move down the housing ladder. The idea is to allow them to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction.

The Smiths don't fit that profile. But then Monte Howard, director of Affinity Marketing for Generation Mortgage, the Smiths' reverse-mortgage lender, believes it will be the nation's burgeoning legion of seniors, not the lending community, "who are going to teach us how this product really works."

Source

Reverse mortgage variation is aimed at seniors looking to downsize

Reporting from Washington -- That Ralph and Plum Smith bought a house last month in Brookings, Ore., is not terribly remarkable, at least not until you learn that he's 84 and she's 77. But what is even more noteworthy is that the couple didn't pay cash for their new $240,000 home, yet they will have no mortgage payments.

The Smiths are among the first seniors in the country to close on a Home Equity Conversion Mortgage (HECM) for Purchase, a form of federally insured reverse mortgage authorized in the Housing and Economic Recovery Act of 2008. The law took effect Jan. 1.

The program is aimed largely at persons 62 years or older who want to move down the housing ladder. The idea is to allow them to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction that eliminates the need for two sets of expensive closing costs.

The Smiths don't exactly fit that profile. But then Monte Howard, director of affinity marketing for Generation Mortgage, the Smiths' lender, believes it will be the nation's burgeoning legion of seniors, not the lending community, "who are going to teach us how this product really works."

The Smiths sold their house last May and moved into an apartment to mark time until they decided what they wanted to do with the rest of their lives. But when their real estate broker showed them they would have paid $68,000 in rent in six years and "have nothing to show for it," they decided to rejoin the ranks of owners.

The Oregon couple used proceeds of the sale of their old house as a down payment for the new one, and took out a reverse mortgage for the rest. They still had to cover the expenses for two closings but, except for a review of their financial obligations, they didn't have to meet any income, credit or asset qualifications for their new loan.

Better yet, they'll have no monthly payments because the loan doesn't have to be paid back until they leave their new home.

"We're just delighted," says Plum Smith. "We accomplished what we wanted to do, and that was downsize."

The loans are called reverse mortgages because, instead of you paying the lender, the lender pays you. The amount you receive is based on the age of the youngest borrower, the value and location of the home and current interest rates. You can take the proceeds in a lump sum, as the Smiths did to pay for their new house; as a line of credit to be tapped as needed; in monthly installments; or in any combination of the three.

Interest and mortgage-insurance premiums accrue on the borrowed amount, but no payments are necessary until the home is no longer occupied or owned by the borrower. In other words, a reverse mortgage need not be repaid until you sell, move out or pass away.

And since these are nonrecourse loans, you'll never owe more than the value of the property. You'll owe the sum of the amount you borrowed plus the accrued interest and insurance. If the house is worth more than that when you leave, you or your heirs will receive the difference. And if it is worth less, the lender eats the difference, not you or your estate.

About the only eligibility requirements are that you must be at least 62 and the home must be your primary residence and held in your name. Cooperatives, second homes, vacation properties and some manufactured houses are not eligible.

There is a limit on how much you can borrow: $625,500 until the end of the year, when it falls back to $417,000 unless Congress decides otherwise.

Instead of allowing seniors to unlock the equity they have in their current residences without having to move, the Home Equity Conversion Mortgage for Purchase is designed for older owners who want to scale down their housing, perhaps to a place that's not just smaller but also meets their changing physical needs, has a better climate or is closer to their children.

"Since the product is brand new, there really isn't a typical scenario just yet," Howard of Generation Mortgage says. "But one of the most exciting is that seniors like the Smiths who have been out of the housing market will be able to come back and consider homeownership again. This is their chance, especially with prices as low as they are."

However you choose to use your Home Equity Conversion Mortgage for Purchase, you don't have to use all your borrowing power to buy another place. If the house costs less than you can borrow, you can use the difference for other purposes. Or, like a regular reverse mortgage, you can take the rest as a line of credit.

Source