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?

1. You and your spouse are 62 years of age or older
2. The house you would mortgage is your primary residence
3. You live in that house for at least 6 months a year
4. Your house is a single family, duplex, three unit, four unit, condominium, or manufactured house
5. You have a lot of equity in your house or own it free and clear
6. You do not plan on moving in the next year or two
7. You have recurring need for extra cash to pay bills or improve your lifestyle
8. You are not receiving income or money from public programs that might be lost by doing a reverse mortgage
9. You and your spouse have discussed and agreed together this is the best course of action
10. You consulted with your children they understand and will sit in on the planning sessions
11. You are not determined to leave your house completely free and clear to your children
12. You have considered alternatives to a reverse mortgage and still feel this is the best way
13. You know what you will be using the money for, it will not just be wasted
14. You have consulted a counselor and had your questions answered
15. No one has told you to buy life insurance or annuity with the cash

That is a very basic checklist to go through to see if you are a candidate for a reverse mortgage

If you need more questions answered feel free to give me a call at 414-531-4035