Are “Hefty Fees” Really A Drawback of the Reverse Mortgage?

Posted on May 6, 2012 by Beth Paterson, CRMP

An all too common statement is that a drawback of the reverse mortgage is the hefty or high up front fees. But are they really hefty? Are the fees really a drawback?

First, have you looked at the fees to obtain a conventional mortgage? Do you realize the reverse mortgage fees compare to a conventional mortgage with the FHA Mortgage Insurance Premium being the difference? I’ve done side-by-side comparisons.

These comparisons reflect the third-party fees, including the appraisal, credit report, flood certificate, title fees, recording fees, Minnesota Mortgage Registration Tax, etc. are almost identical. Actually because HUD regulates the fees, mark-up and junk fees or processing fees aren’t allowed so the third-party fees may even be a little less than a conventional mortgage.

Another fee associated with both the reverse mortgage and a conventional mortgage is the origination fee, the fee that covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, licensing, administrative costs, business overhead (computers, electricity, health insurance, marketing, processing, underwriting,) etc. The underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.

On a conventional mortgage one can “buy” a lower interest by paying a higher origination fee or a lower interest rate with a higher origination fee. The reverse mortgage is similar however the rate versus paying an origination fee or not is determined by the product (fixed or adjustable rate) and what the lender sets as allowable. For example, with the fixed rate one may have zero origination fee but the interest is a set amount determined by the lender or there may be a lower interest rate but the FHA allowable origination fee is included. (2% of the first $200,000, 1% on thereafter, with a cap of $6,000). Again the fee is comparable between a reverse mortgage and a conventional mortgage.

The fee that really makes the difference from a conventional mortgage is the FHA Mortgage Insurance Premium (MIP). The most common reverse mortgage, and only one available in Minnesota, is the HUD Home Equity Conversion Mortgage or HECM. With the Standard Reverse Mortgage the up-front MIP is 2% of the home value. (The MIP on a forward FHA loan is currently 1.75%.)

The many benefits of paying the FHA MIP on the reverse mortgage include:

Guaranteeing the funds are available for you.
Guaranteeing the lender against default or shortfalls
Keeping the interest rates lower, the interest rates have historically been lower compared to other mortgages.
Providing a line of credit growth rate (available only with reverse mortgages).
Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan; FHA makes up the difference if the loan balance is higher than what the home can be sold for.
Requiring counseling by a third-party HUD trained and approved counselor.
The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”

One must understand that the reverse mortgage is an open-ended term loan (the due date on the mortgage is the youngest borrower’s 150th birthday*) with no limit to how high the balance can grow and the collateral is only limited to the property (a non-recourse loan with no personal liability to the borrower or the heirs). With FHA’s generous allowance of proceeds, not based on income, assets, or credit scores, some reverse mortgages will end up with loan balances higher than the value of the home either due to the current declining home values or the nature of the loan with no monthly payments being made and accrued interest and on-going FHA MIP (essentially one is borrowing these fees each month). Therefore the MIP and other closing costs are necessary to make the program viable and are not a drawback to the reverse mortgage.

When comparing the costs of a conventional mortgage to the HECM Saver program which reduces the upfront MIP to .01%, the fees are essentially the same. However, in exchange for the reduced upfront MIP, reverse mortgage borrowers receive fewer funds and the interest rate is higher.

It’s important to note that the fees become part of the reverse mortgage loan balance – there are no out-of-pocket fees other than the cost of the appraisal. So borrowers are not required to come up with the money to cover the fees before they do a reverse mortgage.

If one thinks about it selling one’s home could also be considered expensive with similar fees to the reverse mortgage (the generally higher real estate agent’s commission and again the FHA MIP is the difference). Are the real estate commission and closing fees a drawback to selling one’s home?

Besides looking at the costs of a conventional loan or selling one’s home, how expensive are credit cards? While they don’t have up front costs, the interest on credit cards can be outrageous which over time this can make the credit card expensive. We often find seniors have high credit card debt because that is what they are using to finance their living expenses. The cost of credit cards don’t seem to be a drawback, people still get and use credit cards.

If a senior can’t afford to make mortgage payments, if they need funds for repairs, for home care or medical expenses, for daily living expenses, for the extra elbow room, funds to make that trip for a family reunion or wedding, or even to be able to check something off their bucket list, the benefits may outweigh the costs. The security, independence, dignity and control and peace of mind received from the reverse mortgage may outweigh the costs.

Do you not refinance or purchase a home because the of the fees on a conventional loan? And what about the costs of surgery? Would you not have surgery if it would improve or save your life just because of the fees? The cost of food is going up but do you do without food because of the costs? Not if the benefits outweigh the costs, right? Well, if the benefits of the reverse mortgage outweigh the costs, then the fees are not a drawback of the reverse mortgage.

*The reverse mortgage is due and payable when the home is no longer the primary residence of the borrower(s), i.e. when they sell, move, die. The due date on the reverse mortgage is the 150th birthday of the youngest borrower rather than a 15 or 30 year term on a conventional mortgage.

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-yM

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

A Reverse Mortgage Doesn’t Leave An Inheritance. But How Are You Going To Meet Mom’s Needs Today?

Posted on April 23, 2012 by Beth Paterson, CRMP

“I want to leave an inheritance for my kids.” “I want my son to get my house.” “The reverse mortgage will eat up my inheritance.” “The reverse mortgage isn’t good for the kids.” “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned. My question is, do you, the children, have the money needed to cover the costs of mom or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?

Let me share a story. As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage. In this one particular situation, the woman, Chris, was living off her Social Security income of about $600 a month. She needed new teeth, new glasses, some new clothes, and her home needed some repairs. She loved going to plays but couldn’t even afford the community plays for $5 to $10. Doing a reverse mortgage would help Chris “live with more” so she completed the application.

A few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it. After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this? Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away. She said, “Of course not, he doesn’t have the money to help me.”

Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage? Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably? Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives? Aren’t these the same things every one of us wants? Why would you deny your parents?

Even if one’s children are able to help their parents today, do their parents really want to be dependent on their children? What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents? This can impact everyone!

What if one needs home care or has medical expenses? Why should one do without needed care so they can leave an inheritance? Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance? Or will the children have to help pay for the senior housing? Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway? Who should benefit from the use of funds or assets that the senior worked so hard for? Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.” This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control. The most common, and only one available in Minnesota, is the FHA insured HECM. The reverse mortgage offers many benefits including no monthly mortgage payment requirements, and no income or credit requirements to qualify for a low interest rate. The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower. As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference. And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.

The borrower remains the owner of the home with the title staying in the name of the borrower(s). In addition, the reverse mortgage has many protections, likely more than any other financial product or service. To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

I’m happy to say Chris did proceed with her reverse mortgage. And for the last six years I’ve received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs. Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding. And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage. If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly. In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

So what do you think is better? Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Reverse Mortgages Receive Some Good PR Coverage

Posted on March 24, 2012 by Beth Paterson, CRMP

While the media often feeds into the myths and misconceptions about reverse mortgages, the past two weeks there were two pieces that provided accurate and good information about this finance option for seniors.

First was a post in the New York Times on March15th titled, “More Homeowners Seek Reverse Mortgages At Earlier Age” http://bucks.blogs.nytimes.com/2012/03/15/more-homeowners-seek-reverse-mortgages-at-earlier-age/

And on March 21, NBC Today Money 911 panelists provided a good answer to a daughter who thinks she should get an inheritance rather than her mother having done the reverse mortgage. http://www.finishrich.com/blog/nbcs-today-show-money-911-march -21-2012/

The reverse mortgage provides funds for the senior’s needs and wants. It helps them have money for their security, independence, dignity and control… no matter what their age.

It’s good to see the media catching on and providing facts for a change.

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Senior Loses Home After Listening to “Reverse Mortgages Are Bad” Advice

Posted on March 1, 2012 by Beth Paterson, CRMP

I got a call from a 65 year old woman, Ann, inquiring about a reverse mortgage stating she owed over $20,000 in back taxes and was facing tax forfeiture in just a few short months. Ann had no other debt and her home was worth more than $300,000. Based on her situation, she wouldn’t qualify for a conventional or “forward” mortgage. Someone had suggested the reverse mortgage a solution to her situation.

I explained that a reverse mortgage is a mortgage with special terms for those 62 and older. As an FHA insured loan HUD oversees the Home Equity Conversion Mortgage or HECM providing protections like no other financial option. With the HECM there are no income or credit score qualifications *(see updated information below) and no monthly payment requirements. The home would remain hers with the title in her name. And the reverse mortgage funds could pay off her tax debt and she could leave the remaining funds in a Line of Credit with a growth rate for future needs including paying her property taxes going forward. Or if she chose she could receive monthly payments, a lump sum or a combination of these options.

I went on to explain that the loan would be due and payable when the home was no longer her primary residence or on her 150th birthday. If at the time the loan was due and payable the home was sold for more than the loan balance she or her estate would receive the difference in funds. Or if the loan balance was higher than what the home could be sold for, as a non-recourse loan she or her estate would not have to come up with the difference, the FHA Mortgage Insurance covers the difference.

She of course wanted to think about it. During a follow-up conversation she said she had talked with her brother who told her she shouldn’t do the reverse mortgage because they are bad. When I inquired why he thought they were bad, she didn’t have a response. I asked if her brother could come up with the funds to pay her back taxes… “Maybe.”

I reiterated the details and benefits of the reverse mortgage emphasizing that the funds could pay the back taxes and she would have funds in a line of credit for her future taxes and that she wouldn’t have to make monthly mortgage payments. (Borrowers are still responsible for paying property taxes and property insurance.) I also offered to meet with her and her brother to educate them on the details and facts of the reverse mortgage.

A couple weeks later during another follow-up conversation, she was still hesitant because of her brother’s advice. I again inquired if her brother could come up with the funds for her back taxes… “No, he doesn’t have that kind of money!” With an inquiry if she had another way of coming up with the funds for the back taxes… no she didn’t. And her brother didn’t want to meet to learn the details and facts of the reverse mortgage. I explained that if the county foreclosed on her home she would be losing around $280,000 in equity.

Time was getting down to the wire in order for us to have time to process the reverse mortgage so I did one more follow-up call. She said her brother warned her not to do the reverse mortgage because they were “bad” and expensive. I reviewed the costs explaining they compare to a conventional mortgage other than the FHA mortgage insurance. And even beyond that the benefit of the reverse mortgage outweighed the costs… saving her home from foreclosure and the loss of around $280,000 in equity.**

A few months later when I checked the county records, the county was the owner of her property.

Listening to her brother who did not know, and was unwilling to learn the details and facts of the reverse mortgage, Ann had lost her home and a lot of equity. With all the benefits and protections, the reverse mortgage would have made a huge difference in the quality of her life.

It was sad and unfortunate that she listened to the unwise advice of “Don’t do a reverse mortgage, they are bad.”

Next time you hear “Reverse mortgages are bad” or “Don’t do a reverse mortgage” or “One should wait until their 70’s to do a reverse mortgage” remember this story and how the reverse mortgage could have made a difference.

*In April 2015 a Financial Assessment was implemented to determine borrower’s ability and willingness to pay property taxes and insurance into the future. This safeguard help make the reverse mortgage more sustainable so borrowers can remain in their home.

**Property taxes are levied and collected by counties. When property taxes are past due after a certain amount of time (redemption period) they go into tax forfeiture. In most counties across the US, to get their money quickly, the county issues a tax lien certificate or a tax deed and will conduct a sale where the tax lien certificate or tax deed are sold at auction often for only the taxes, penalties and interest due. The winning bidder receives a legal claim to the tax debt or tax lien certificate. The property owner has the opportunity to pay off the debt and reclaim the property. If the owner does not pay back the certificate then the investor often gets the entire property for only the taxes, penalties and interest due.

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Why Are People So Resistant to Reverse Mortgages?

Posted on February 17, 2012 by Beth Paterson, CRMP

I was at a resource provider network meeting the other morning when a Minnesota County government agency talked about their financial and foreclosure counseling services. When I mentioned they should keep in mind that a reverse mortgage should be considered for homeowners over 62 the response was resistance. Here’s how the conversation went.

Me: “Keep in mind that a reverse mortgage may be an option for your clients who are homeowners 62 and over.”

Agency: “Our clients don’t qualify for a reverse mortgage.”

Me: “Why do you say that? Are they homeowners 62 and over?”

Agency with hesitancy: “Some, but not many.”

Me: “Well for those 62 and over a reverse mortgage may help them.”

Agency, again with hesitancy: “They are in foreclosure.”

Me: “But a reverse mortgage may help save their home from foreclosure.”

Agency, defensively: “But one spouse may not be 62.”

Me: “The requirement is that both borrowers be 62 so the younger one would need to be removed from the title, and while that is risky and not normally recommended, if it’s a matter of losing their home or being able to stay in their home, the reverse mortgage may be an option. It’s at least worth considering.*”

*I suggest they talk with an attorney so they are aware of the risks of removing a younger person from the title.

Agency: “But there may not be enough funds to pay off their mortgage.”

Me: “We can work with the banks to negotiate them taking the reverse mortgage proceeds as a payoff. It’s been done where the banks accept the reverse mortgage as a payoff. It can be a challenge but it is at least worth a discussion and a try. We have done some amazing things.

“All I’m saying is that instead of saying there aren’t options, we can’t help, the reverse mortgage should at least considered as an option and explored for those over 62.”

This conversation raises the question, why are people resistant to reverse mortgages when it can make such a difference in the lives of seniors?

Are they so hung up that it’s not their agency solving the problem they don’t think anyone can? Or is it they don’t want someone else to help? Are they afraid that someone else can help and they can’t? Is it because their funding depends on them solving the problem and it’s more beneficial to them to not help and not provide all options? Is it because they are a non-profit government agency and we are a private for-profit company? Is it they don’t think I should get paid for my services (after all as a government non-profit agency and as paid staff they are making a salary with sick days and vacation days while I’m commissioned, no paid sick or vacation days.)? Or is it they just don’t understand reverse mortgages?

I don’t understand why they or others wouldn’t want to offer an option that may benefit the seniors even if it’s not their program that solves the problem. Even if it helps just one person/couple, isn’t it worth it?

A reverse mortgage is a mortgage that has special terms for those 62 and older to use their equity while they still own and live in the home. Income and credit aren’t considered to qualify for an interest rate and monthly payments are not required during the term of the loan. The loan is due when the home is no longer the primary residence of the borrower(s).

The most common reverse mortgage, and only one available in Minnesota, is the HUD Home Equity Conversion Mortgage or HECM which is insured by FHA. The borrowers pay a FHA Mortgage Insurance Premium (MIP).

When the loan is being paid off, the borrower or the estate keep any difference between the loan balance and the sale price. As a non-recourse loan, if the loan balance is higher than the sale price on the home, the lender is repaid the fair market value and the borrower doesn’t have to pay the difference – the FHA MIP covers the difference. The loan documents spell out there is no personal liability to the borrower or their estate, unlike conventional mortgages that can get funds from the estate to cover the loan balance.

One of the other meeting attendees commented to me after the meeting, “It appears they don’t really care to be helping people.” That’s a sad impression to give when you are an agency paid to help the community.

I believe we all need to work together and offer options to help, whether non-profit, government or private for-profit. If the reverse mortgage is considered and explored but is not the right option, I want to be able to know about other options and people who may help so I can do referrals to someone who might be able to assist them. This is why I attend provider network meetings to learn about resources and options.

I wish others wouldn’t be so resistant to reverse mortgages when they can make such a difference for seniors.

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Eleven Statements To Listen For Indicating A Reverse Mortgage May Be Beneficial

Posted on January 19, 2012 by Beth Paterson, CRMP

When you hear any of these eleven statements from a homeowner 62 and older a reverse mortgage may benefit them. They should be encouraged to get the facts to see if a reverse mortgage is right for their situation.

“I want to stay in my home.”
“My only option is to move.”
“I can’t afford home health care.”
“We can’t afford a mortgage payment.”
“We can’t afford to make home repairs or modifications.”
“Not enough money at the end of the Social Security check.”
“I need help with keeping up my home with housekeeping or yard work.”
“I’m downsizing and moving.” or “I’m moving closer to my children.”
They need funds for retirement planning.
They can’t afford the little extras that would help them maintain and enjoy their life.
They want Security, Independence, Dignity, and Control which they are missing in some way now.

A reverse mortgage is a mortgage with special terms for seniors 62 and older. Some of the differences include income and credit scores are not considered to qualify for the interest rate and monthly mortgage payments are not required. Rather than a 15 or 30 year term, the loan is due and payable when the home is no longer the primary residence of the borrowers or on the 150th birthday of the youngest borrower. In addition, the reverse mortgage is non-recourse, which means if the loan balance is higher than what the home can be sold for there is no personal liability to the borrower or their heirs. If the home is sold for more than the loan balance, the borrower or their heirs receive the difference. The most common and only reverse mortgage available in Minnesota is the FHA HUD insured Home Equity Conversion Mortgage or HECM.

Options are available! When you hear any of the above statements remember a reverse mortgage may be the option that is the most beneficial to their situation.

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Where The Heart Is: Using Technology To Remain At Home

Posted on January 9, 2012 by Beth Paterson, CRMP

I was privileged to present a webinar for GrandCare Systems webinar series:

Where The Heart Is: Using Technology To Remain At Home

You have the opportunity to listen and view the webinar.

Seniors have always wanted to remain at home. Now with the housing market where it is, seniors are staying at home even longer. We’ll discuss how using technology adds benefits to remaining at home.

In this webinar you will learn:

How housing conditions are impacting seniors remaining in their homes longer.
The benefits of using technology to remain at home.
How using technology and a reverse mortgage can be cost effective and expand the time one can remain at home vs moving to senior housing.

Access the webinar here: http://grandcare.wordpress.com/2011/12/07/1215-webinar-where-the-heart-is-using-technology-to-remain-at-home-with/

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Minnesota Reverse Mortgages SIDAC

Minnesota Reverse Mortgage Information, Facts and News from the Experts Excelling in Service

Category Archives: Aging In Place

Senior Loses Home After Listening to “Reverse Mortgages Are Bad” Advice

Why Are People So Resistant to Reverse Mortgages?