Reverse Mortgage Safeguards

Reverse mortgages are becoming quite popular among seniors in the United States. Gone are the wild west like days of originating reverse mortgages. As they started to become more popular the federal government stepped in to regulate them and protect seniors from abuse. These safeguards are regulated by the Federal Housing Administration (FHA) and it’s HECM product is the premiere reverse mortgage.

Here is a list of the safeguards available when a senior takes out a reverse mortgage:

1)- Independent counseling – Before an application can be processed, the borrower must first meet with an independent certified counselor. HUD and AARP have lists of impartial third party counselors whose jobs are to help seniors in the process .

2)- Standard & Capped Rates – Depending on the specific reverse home loan you have, they may have a life-time cap and a periodical rate cap to make sure that a sudden increase in interest rates doesn’t affect you negatively. Also more recently there has been a fixed rate reverse mortgage which takes away any of that worry.

3)- Limit on fees being charged – Origination fees are capped and can not surpass a specific percentage of the value of the mortgage.

4)- Advance Disclosure – As a borrower, you are entitled to receive a Total Annual Loan Cost (TALC) disclosure. This disclosure is required by the Federal Reserve Board and it has the information you need to understand the total transaction costs over the life of the home loan.

4)- No maturity date – A reverse mortgage can never be due as long one of the borrowers still reside in the house. You can stay in the house as long as you want if you pay real estate taxes, insurance and other maintenance costs.

5)- No prepayment penalty – When you get a reverse mortgage, you can pay it off at any time with no additional costs. In some limited cases, the reverse mortgage may have a one year prepay so check with your adviser.

6)- Three day grace period – You have three days to change your mind after the loan closes and you can cancel without cost to you.

7)- Home protection – You can never owe more money that the house is worth. You are guaranteed to not leave your heirs with a bill. Your house title is always in your name with the reverse mortgage as a mortgagee only.

8)- No equity sharing – Unlike the old days when you would have to give the equity away there is no equity sharing. The appreciation is yours or your heirs to keep.

Here are some of the reasons a senior may need a reverse mortgage. It is not a complete list but you can review and see if you fall under this category. If you do then you may want to give me a call and see if it a wise decision. Reverse mortgages are not for everyone so make sure you get with a reverse mortgage expert.

* You can use the proceeds from a reverse home loan to pay for high medical bills. Health care costs are enormous in the U.S.A. and medicaid/medicare don’t cover enough

* Your employer let you go before you could qualify for the pension plan. Retirement savings isn’t enough to support you and a part time job may be on the horizon

* You don’t have enough cash flow to do anything fun or something you have wanted to do for a long time.

*You want to afford doing things you haven’t been able to do before because you were too busy performing your obligations.

*Your home needs repairs but you don’t have the money to do them. If you have lived in your house for many years and want to stay there it may need updating, which can cost a lot of money

* Your social security and Medicare payments are not enough.

* You want to buy long-term care insurance.

* Your children need money and you want to help them. Perhaps your grandchildren need help with college expenses and you can fund their education

* You have no heirs or your children are doing well financially and you want to use all the money you have saved

* You want to purchase a vacation home in an area you like or just want to get a small house near your family.

* You retired early and don’t qualify yet for social security payments.

* Your house is in foreclosure and you don’t have enough money to pay what you owe on it. Perhaps the monthly mortgage payment is too much on the budget. How about no mortgage payment?

• Maximum lending limit varies per county, Milwaukee is 219,545
• Homes that qualify are single family detached, condominium, manufactured home, planned unit development, one to four rental unit if it is owner occupied
• Government insured so it can never be more than the value of the house
• 2 percent up front mortgage insurance premium that is financed into the loan
• Available to homeowners 62 and older
• no income requirements
• interest rate is adjusted monthly, yearly, or can be fixed under certain programs
• Monthly: lifetime cap of 10%; annually : 5% cap
• Rate is based on T-Bill interest rate plus margin (depends on program)
• Payments can be a lump sum, a line of credit, monthly income, or a combination of these
• Proceeds are not taxable
• Borrower can use proceeds without restriction (can’t pay for reverse mortgage advice)
• Balance on line of credit increases every year
• You can chose a limit on the mortgage length “term” or tenure, until you leave
• Closing and origination costs are included in the loan
• A 35 dollar mortgage servicing fee is added to the balance
• Usually does not affect social security or medicare eligibility
• Consultation with an approved HUD counselor is required
• Loan is due when home is no longer a primary residence

It is impossible to keep up with all the new regulations with reverse mortgages. I have tried to give you the basic rules so you understand the program. I recommend that you check a few other sites for help. here are a couple of them that will also help to answer questions

Reverse Mortgages

Wisconsin Reverse Mortgages

Dangers of Reverse Mortgages

During the refinance boom of the last couple of years many seniors refinanced their mortgages to low adjustable rate mortgages or took cash out on fixed rate loans. Many lenders are now finding that some seniors that have refinanced in recent years cannot afford the monthly payments. Some are due to the rate increasing on the ARM loan and others due mostly to declining incomes in their retirement years. While that scenario also has been the path taken by younger borrowers, seniors at least have the option of considering a Wisconsin reverse mortgage instead of a “forward” mortgage. With this option it may be feasible to avoid losing the house due to a foreclosure and also making sure that no more problems like this arise in the future. Without a payment due and payoff of many debts possible, it will make seniors budgeting a lot easier.

According to the United States Bureau of the Census and the National Center for Health Statistics, the older population — persons 65 years of age and older — numbered 35 million in 2000. While the years since the last census have altered the numbers, it showed the over-65 group represented 12.4 percent of the population — about one in every eight Americans. The census data showed nearly 80 percent of the nation’s seniors own their own homes, and 73 percent are owned free and clear of any mortgages, amounting to nearly $1.9 trillion in home equity.

It’s the 27 percent that do not own their homes free and clear that could be at risk. Many of these seniors didn’t expect the raise in gas, food and fixed expenses of everyday life. When I talk to many of these seniors their first response is a reverse mortgage is just for receiving payments. I don’t need the extra income a reverse mortgage provides, I just need my costs to go down. What many people forget is a reverse mortgage can get the current mortgage debt off of your back. For instance you may have an arm that just adjusted and the payments went up a hundred dollars a month. With the proper equity you can pay that off with the reverse mortgage and not have any more payments due while you live in the house. Instead of figuring out how to pay the extra hundred you might have freed up hundreds and avoided losing the house.

In the case of being in foreclosure but living in an equity rich house, you still have the Wisconsin reverse mortgage option. When qualifying for a reverse mortgage credit and income are not considered for approval. Even though the foreclosure probably lowered  your credit score you might still be able to stay in your house and not have any more payments. The key criteria is your equity and age which will determine your lump sum distribution. It is this distribution that pays your delinquent mortgage. There might even be an option of negotiating a lower payoff to make this work as lenders do not want to own a home in this market. I have negotiated many payoffs for up to 20% off the payoff balance. It is vital to get this in writing and give it to your reverse mortgage lender so they know what balance to pay off.

If you are a senior in financial trouble don’t just give up. Search out some options that could help save your house. Find a knowledgeable reverse mortgage expert who can see if you qualify for this type of foreclosure workout. When talking with this individual make sure they have done a foreclosure workout as dealing with that department can be tricky. Good luck in your research. You may call anytime at 262-641-4450 and ask a question.