Ask The Reverse Mortgage Experts

Ask the experts about reverse mortgagesCheck back frequently to find answers to your questions about reverse mortgages from the Minnesota Reverse Mortgage Experts.

If you have a question about reverse mortgages you would like answered, please send them to us at info@RMSIDAC.com. Your name, address, phone number, and e-mail address are all required to receive a complete response.*

We will respond to you personally and answer your question on this page, keeping your personal information confidential, of course.

*Why do we ask for all your contact info? NOT to pressure you or add you to one of our lists (we respect you and are not high pressure sales people). However, some times it is easier to provide a complete answer verbally rather than just in writing. There may also be some details or circumstances that could apply that we need prior to providing you with a correct and accurate answer. Some times the answer may vary depending on where you live. So providing your contact information means we can receive all the info we need to provide you with a complete and accurate answer.

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Loan Balance higher than home value – The amount of mortgage is outpacing the value of house and there is no way to pay the mortgage when we die or decide to leave for assisted living. What are our options.

Funds Are Used My reverse mortgage funds are used… now what?

Finding a lender In addition to working with a qualified reverse mortgage professional like yourself, what are some of the trail signs to alert a new retiree that he is going down the wrong path with the wrong professional advice?

One spouse not 62 I am working with a couple where one spouse is under 62. Can this couple do a reverse mortgage?

How safe With the market the way it is, how safe are reverse mortgages?

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Fixed Rate Are all reverse mortgages adjustable rates or is there a fixed rate reverse mortgage?

Medical Assistance I’m receiving Medical Assistance (Medicaid), can I still do a reverse mortgage?

Refinance Mailings I currently have a reverse mortgage and keep receiving mailings about refinancing. Should I refinance my reverse mortgage?

Making Interest Payments Why does my father have to make the interest payments on his reverse mortgage?

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Co-ops Co-ops and reverse mortgages are growing in Minnesota so can a reverse mortgage be used for co-op financing?

Equity grab I saw an article in the paper where a woman and her late husband did a reverse mortgage in the 1980’s. The article mentions “additional interest” and “equity grab” loans. If I do a reverse mortgage am I getting into this type of loan?

More than one property Can a Reverse Mortgage be done on more than one property owned by a couple? For example, if a husband does it on one property and the wife does it on another property.

2nd Home or Non-primary residence Is there any Reverse Mortgage product that can be done on anything but the primary residence?

Life Estate Can A Reverse Mortgage Be Done With A Life Estate in Place?

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Answers to your Questions:

Q

I have a reverse mortgage and it appears the amount of mortgage is outpacing the value of house and there is no way to pay the mortgage when we die or decide to leave for assisted living. What are our options.
A
As a non-recourse loan, when you die or decide to leave the home you or your heirs are not responsible for the difference if the loan balance is higher than the home can be sold for. When you are out of the home make sure you or your estate reach out to the servicer within 30 days to let them know you are out of your home. At that time the servicer will advice you or your estate of the options.Note that if the home is sold for more than the loan balance, the difference goes to you or your heirs.

Q
My Reverse Mortgage Funds Are Used… Now What?
A
Q

In addition to working with a qualified reverse mortgage professional like yourself, what are some of the trail signs to alert a new retiree that he is going down the wrong path with the wrong professional advice?
A
I would say that if one is feeling pressure of any sort that would be a warning sign. Some reverse mortgage originators have application “quota’s” they have to meet so they are more likely to tell borrowers the loan can be done just to get an application even though the property may not qualify (we hear these stories quite often) for a reverse mortgage.

Work with a loan officer who specializes in reverse mortgages, has experience, knows the regulations, and is keeping up with all the changes and looks out for the client’s best interest rather than “just getting the deal” or taking an application. I have posted a list of items to consider when talking with lenders this can be found on the website as well as a Blog postNote that new January 1, 2010 RESPA (Real Estate Settlement and Procedures Act) states that a Good Faith Estimate can only be provided with an application. The intention is to help borrowers receive more details of the fees however it is causing some confusion. I fear that some lenders will start processing the loans before borrowers are ready to proceed, i.e. the borrower(s) just wanted an explanation of the fees and in order to get this the application process is started. There are not many reverse mortgage fraud cases however there are loan officers who don’t have a lot of experience, only do one or two a year and don’t follow the regulations, not purposefully to harm or take advantage of seniors but from lack of knowledge and experience which can cause the negative stories that get published. That’s why it’s important to work with a specialist. As one client said they wouldn’t go to the general practitioner if they were having heart problems, they would go to the heart doctor so why not go with the reverse mortgage specialist than the general mortgage or bank practitioner.Thanks for the question. I hope this helps.

Q

I am working with a couple where one spouse is under 62. Can this couple do a reverse mortgage?
A

HUD’s requirement for the reverse mortgage is that all borrowers be 62 older. So the younger spouse would have to be removed from the title in order to do a reverse mortgage and would be considered a non-borrowing spouse.I am not recommending the younger spouse’s name be removed from the title and I am not providing this information from a legal standpoint. Any loan officer/lender should not recommend this nor give legal advice. This information is based on HUD’s requirements for a Home Equity Conversion Mortgage (HECM) only.Because the loan requires at least one borrower to be living in the home as their primary residence, when one’s name is being removed from the title there would be risks with their name not being on the title. For example, if the borrower (one whose name is on the title) passes away or goes into a nursing home permanently the loan becomes due and payable. Even when the non-borrowing turns 62 their name could NOT just be added back on title without refinancing the loan and that would mean paying closing costs again.Non-borrowing spouses are required to receive the counseling and the counselors do tell the borrower about risks of removing a spouse from the title. The non-borrowing spouse will have to provide ID and sign a Non-borrowing Spouse Affidavit as well as at the closing sign the Mortgage/Deed and the Right to Cancel documents along with the borrower.I recommend that my clients meet with an attorney to review all the risks and decided if they should proceed with a reverse mortgage by removing a younger spouse’s name from a title. I would also advise at looking at options to protect the non-borrower spouse to be able to pay off the loan balance that would be due and payable when the borrower is no longer in the home as their primary residence. Again, this should be reviewed with an attorney.Additionally, I would advise on finding and working with a loan officer who has lots of experience with reverse mortgages including processing, not just originating. They can help you with originating and processing the application (at least processing from knowledge and as a team with the processor – not just taking an application and sending it off to a processor). Working with a loan officer who does not have much experience could mean the loan may end up not meet HUD’s requirements and would not be insured. Click here to view what to look for in a originator.

Q

With the market the way it is, how safe are reverse mortgages?
A

Even though the mortgage market may seem unstable, a reverse mortgage is safe whether you have one or whether you are considering one. The most common reverse mortgage, the Home Equity Conversion Mortgage (HECM) is insured by FHA which means that funds are guaranteed no matter what happens to the home value. As a non-recourse loan there is no personal liability to pay the loan balance when the borrower moves, sells, or dies. The loan is paid only from the property.With the financial market situation, seniors may be feeling financially insecure and may be forfeiting some basic necessities. They need money for groceries, gas, medical expenses, property taxes, utilities, etc. Maybe they need home care or home modifications. They may be struggling to make their mortgage payment or facing foreclosure. Doing a reverse mortgage NOW may be to your advantage.While home values are lower right now, the Expected Interest Rate used to determine how much is loaned is also at its lowest. Home values will most likely rise in the future. It is also likely that the Expected Interest Rate will go up. This means that even with the future increased home value, the amount available on the reverse mortgage could be the same or less if you wait to do a reverse mortgage.If you want to stay in your home, now may be a good time to do the reverse mortgage and pay off your current mortgage, do home repairs, pay medical expenses or home health care, take a vacation; whatever you need or want. And then relax knowing the reverse mortgage is safe.

Q

Are all reverse mortgages adjustable rates or is there a fixed rate reverse mortgage?
A

A HECM Fixed Rate became available in February 2008. Until then the only option was adjustable rates, either monthly or annual. The most common was the monthly adjustable and this remains the most common.  While a fixed rate reverse mortgage sounds enticing, once it is understood, it may not be the best choice for a reverse mortgage unless you need all the proceeds at time of closing.

With the Fixed Rate the interest is being accrued on all funds drawn up front when it may not be necessary to take all the funds initially. Additionally, the growth rate is not available on the funds in the line of credit on all the Fixed Rate programs.  If you are doing the fixed rate, ask for the fixed program that offers the line of credit and monthly payment options for the most flexibility.

***Summer of 2009 the Monthly Adjustable Rate is only available as a LIBOR, the CMT is no longer available.

Q

I’m currently receiving Medical Assistance (Medicaid), can I still do a reverse mortgage?
A
Yes, if handled properly. Because a reverse mortgage is a loan, the proceeds aren’t considered income. Therefore reverse mortgage borrowers can still receive Medical Assistance (MA), Elderly Waiver (EW), or Alternative Care (AC) if handled properly. If not handled properly, borrowers could lose their benefits or be penalized. If you currently have a reverse mortgage and are applying for MA, EW, or AC, if not handled properly you may not qualify or the delay the qualifying date. Make sure you are working with a lender who understands how the reverse mortgage will affect your MA, EW, or AC.The reverse mortgage proceeds can cover expenses not covered by MA, EW, or AC. Maybe the home needs to be modified, repairs need to be done, or taxes and insurance need to be paid. Extra funds can allow a spouse to go out to lunch with friends or give them elbow room for their needs.Beth Paterson, Executive Vice President, of Reverse Mortgages SIDAC, The Experts Excelling in Service, is familiar with the Minnesota statutes as well as the ins and outs of helping Reverse Mortgage SIDAC clients who are on or applying for MA, EW, or AC.
Q

I currently have a reverse mortgage and keep receiving mailings about refinancing. Should I refinance my reverse mortgage?
A

Even though you have been receiving mailings encouraging you to refinance, you may want to look at the options and facts to determine if refinancing would benefit you. Some of these factors include:

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  • How long have you had your reverse mortgage? If it’s under 3 years, not likely refinancing is feasible. If over 3 years, possibly.
  • Do you still have funds in your Line of Credit? How much do you still have available will be a factor in determining whether refinancing your reverse mortgage makes sense.
  • Are you receiving tenure monthly payments (as long as you occupy home as primary residence)? Is this still working for you? If, not maybe restructuring your payment plan would work better than refinancing.
  • How much money will you receive compared to the closing costs. When refinancing you want to receive enough funds compared to paying the closing costs again (even though some are reduced for refinancing). When refinancing you pay the difference between the new FHA Mortgage Insurance Premium (MIP) and what you originally paid, rather than paying the full 2.5% a second time.

To summarize: before you decide to more forward with refinancing, consider your situation and make sure it is feasible. Sometimes it can be feasible, however, make sure you are working with a lender who is considering what is best for you and not just trying to convince you to refinance so they get paid.

Contact us to evaluate whether refinancing would be feasible for your situation, we keep your best interest in mind.

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Q

Why does my father have to make the interest payments on his reverse mortgage?
A

It sounds like your father may have an “interest only” payment loan rather than an actual reverse mortgage. True reverse mortgages don’t require any payments and the loan is repaid when the home is no longer the primary residence of the borrower(s). So if your father is required to make interest payments or any type of payment, it is not a reverse mortgage.In addition to no payments required, all of the reverse mortgage products are non-recourse loans (only paid with the home sale, no personal liability to the borrower or their heirs). There are no prepayment penalties and no equity or appreciation sharing with a reverse mortgage. On the mortgage recorded with the county, the due date of loan is the 150th birth date of the youngest borrower.Unfortunately some lenders are calling interest-only or low-interest loans reverse mortgages and misleading the borrowers. Review the terms of the loan your father has. When are payments due? How much are they and will they change as the interest changes? What is the due date of the loan? Is there a prepayment penalty? If the terms were actually disclosed to him and what he expected, and he is able to make the payments at this time, then you may want to leave the loan as is. However, if he was misled and/or wants to actually have a reverse mortgage so he doesn’t have to make any payments, call us for assistance.To learn about the reverse mortgage programs click here.  Click here to review the details of a reverse mortgage.

Q

Co-ops and reverse mortgages are growing in Minnesota so can a reverse mortgage be used for co-op financing?
A

At this time none of the reverse mortgage products can be used for financing a co-op in Minnesota. Legislation may make it possible to do a reverse mortgage on co-ops in future years. The types of properties that DO qualify for a reverse mortgage include: Single family homes, town homes, two- to four-unit properties as long as one of the units is the primary resident of the borrower, and condominiums with FHA approval (we can usually get approval if not in place already).

Q

I saw an article in the paper where a woman and her late husband did a reverse mortgage in the 1980’s. The article mentions additional interest” and “equity grab” loans. If I do a reverse mortgage am I getting into this type of loan?
A

No, let me explain: The article you are referencing is misleading in that it suggest that this old reverse mortgage loan from the 1980’s is indicative of current reverse mortgage loans. In 1988 FHA was not generating or insuring any reverse mortgages and currently about 95% of all reverse mortgages are the FHA Home Equity Conversion Mortgage (HECM). These now have all of the FHA (part of HUD and the Federal Government), rules and regulations including the regulation of interest rates. There also is no “equity sharing” on these loans. It appears that the couple in this story had a loan offered by a private bank made to look like a reverse mortgage.Interest on reverse mortgages are adjustable rates. The FHA HECM, the most common program, is based on the 1-year US Treasury. As an originating lender specializing in reverse mortgages since 1999, I have never seen the interest rate on any of the reverse mortgage loan programs at 11.2% (the rate mentioned in the article). There was a time in the late 80’s when the interest rates were higher as they were with all mortgages. This couple may have taken their loan out when it was the higher rate but if it was a reverse mortgage offered today the rate would have adjusted with the US Treasury and gone down from there so they would have had the advantage of the lower rates also. With the FHA reverse mortgage, the interest rates for the last 15 years have varied generally from 5% to 8%, and even under 4%. Being the fees of the reverse mortgage become part of the loan balance up front, if the loan is paid off in a short period of time, the fees/costs have a higher impact on the loan if it is paid off in 2 years versus being paid off in 7 years, 10 years, or 18 years as was the case with this couple. Being they had their loan for 18 years the total costs would have been spread over a longer period of time and would have had a smaller impact, or smaller percentage, on the total loan. It would not have been 13.43% after 18 years on the current FHA reverse mortgage program.Several years ago there were some Fannie Mae and jumbo reverse mortgage loans that had “equity share” programs. Often misunderstood or forgotten was that in exchange for lending more money upfront, the lender would receive a share of the equity when the loan was being repaid. This was an advantage to the borrower: they received more funds up front and the lender took a risk and waited to receive their payment until the loan was paid off (which could be 2 years, 8 years, 10 years or in this case 18 years or longer). No one knew how the home values would increase or decrease in value. Looking back, it does seem unfair but at the time the reverse mortgage loans were new and no one knew what the future held or that home values would increase so much (from $83,500 to $500,000 as was with the home in the article). Because of the confusion this type of reverse mortgage program no longer exists.The reverse mortgage loans are non-recourse loans which means there are no personal obligations by the borrower or their heirs to repay the loan even if the loan balance is higher than what the home can be sold for when the loan is due. So borrowers don’t have to worry about having a debt or leaving one to their heirs.The reverse mortgage is a wonderful loan for seniors to assist them to be able to stay in their home and have cash to supplement their income. Some lessons can be learned from this article:

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  1. Borrowers should work with a lender who discloses all the costs and terms of the loans and takes the time to discuss the details with them and their family or other trusted advisors.
  2. Look for a lender who specializes in reverse mortgages, like Reverse Mortgages SIDAC, and offers the all the options available as they are all non-recourse loans. Be leery of private bank loans that look like a reverse mortgage and aren’t one of the previous mentioned loans.
  3. Make sure at the time of application you receive a Good Faith Estimate, a comparison of the programs, the Total Annual Loan Costs, the Truth-In-Lending, and sample of the closing documents including the Note, Agreement and Mortgage. This gives you time to review them with your family, advisor, or attorney before the closing. Reverse Mortgage lenders are required to provide these to borrowers – if you don’t receive them, find a different lender.
  4. If something is not understood or is confusing, for clarification call your loan officer, HUD, the National Reverse Mortgage Lenders Association, or the company who will be servicing the loan (the loan officer should be able to provide this information to you.
Q

Can a Reverse Mortgage be done on more than one property owned by a couple? For example, if a husband does it on one property and the wife does it on another property.
A

A Reverse Mortgage can only be done on the primary residence so a Reverse Mortgage can only be done on one property for a couple living in the same property. In the case of a married couple, even if one of the couple’s name is not on the title or is coming off the title, there are some disclosures the non-borrowing spouse must sign and in Minnesota they both have to sign the mortgage.

However I have done reverse mortgages where the couple was still married but not living together, they each had their own primary residence and could document the separate homes were their primary residences and the properties were at least 50 miles apart.

Q

Is there any Reverse Mortgage product that can be done on anything but the primary residence?
A

At one time there was a proprietary (private) product for larger valued homes that could be done on a 2nd home. However, as of 2008 it is no longer available.

Q

Can A Reverse Mortgage Be Done With A Life Estate in Place?
A

First, let’s define a Life Estate: A legal procedure, a Life Estate is the lifetime rights to own and live in one’s home while transferring the future interest of the ownership to someone else; the remainder person(s); upon death.If a Life Estate is in place, a Reverse Mortgage can be done on the property. The eligible borrower is required to sign all the necessary documents. The holder of future interest, remainder person(s), is(are) required to execute the mortgage document to ensure that the mortgage is secured by a fee simple interest. They do not sign the other documents and do not have the right to loan proceeds of the Reverse Mortgage.Note: We do not give legal advise and do not give advise on whether a Life Estate should be done or not. We do suggest all parties speak with their legal advisor to review their situation if a Life Estate or other legal information or procedures are sought.

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