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.