Basics of Reverse Mortgages You Need to Know

Posted on September 13, 2016 by Beth Paterson, CRMP

The Home Equity Conversion Mortgage, or HECM, is the most common reverse mortgage and only one available in Minnesota. The HECM was first insured by FHA in 1989 for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

A mortgage like any other mortgage where borrowers retain title and borrow against their home equity, the reverse mortgage offers special terms for seniors home owners 62 and older. One advantage for seniors is with the reverse mortgage there are no monthly payment requirements although borrowers are responsible for paying property taxes and insurance. While monthly payments aren’t required, one can make a payment or payments when and how much they choose.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, currently $636,150, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen. Doing the reverse mortgage at a younger age may still be more beneficial than waiting until one is older.

To qualify borrowers must meet a Financial Assessment requirements demonstrating their ability and willingness to pay property taxes and insurance into the future. In some circumstances a Life Expectancy Set Aside (LESA) may be required to cover the property taxes and insurance.

Reverse Mortgage Basics With the Adjustable Rate option, the funds available can be received in a lump sum, monthly payments, a line of credit or a combination of these. The monthly payments can be structured as one needs or for life as long as the home is the primary residence. Funds in the line of credit grow so more funds can be available in the future. The line of credit growth rate is a feature that makes the reverse mortgage a tool for financial and long term care planning.

A fixed rate option is available however only the lump sum draw is available and the draw amount is limited to the 60% of the Principal Limit (an additional 10% is available in some circumstances).

With a reverse mortgage you hold the keys and title The borrowers keep the title to the home and are responsible for property taxes, insurance, and maintaining the home. Unlike a conventional loan the interest accrues, increasing the balance with no mortgage payments due until the home is no longer the primary residence of the borrower(s) or if one has broken the terms of the loan, i.e. didn’t pay property taxes.

Because the closing costs are up-front, they are often perceived as high and often scare people away. However, the fees are comparable to the traditional closing costs of a conventional loan including an origination fee, appraisal, title fees, title insurance and recording fees. As a FHA insured loan, with the HECM borrowers also pay the FHA Mortgage Insurance Premium (MIP).

The repayment amount is the lesser of the loan balance or fair market value of the home. If there is remaining equity, it goes to the borrowers or their heirs. As a non-recourse loan there is no personal liability to the borrowers or their estate for repayment.

Generally the funds are tax-free but one should consult with their tax advisor for their specific situation.

One can have a trust, life estate, or receive Medicaid (Medical Assistance in Minnesota), Elderly Waiver or other public benefits.* In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home and the loan isn’t due until both borrowers are no longer in the home as their primary residence. Not considered income, Social Security and Medicare are not affected. *Check with legal advisor for your situation.

Eligible non-borrowing spouses may be able to remain in the home if they meet certain qualifying attributes. Talk with your local originator and/or HUD approved reverse mortgage counselor for details.

With no limitations on how the funds can be used, through the years hundreds of thousands of seniors have benefitted from the reverse mortgage allowing them to stay in their home and have security, independence, dignity and control.

For further details on the reverse mortgage contact us if you are in Minnesota. As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible. For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1nZ

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.

Want Independence? Explore A Reverse Mortgage.

Posted on July 1, 2016 by Beth Paterson, CRMP

Celebrating Our Independence - Finding Independence With A Reverse Mortgage What gives you a sense of independence? When I think of independence I think of having freedom of choices and not relying on others. We all want our independence including seniors. How can seniors maintain that independence, have freedom of choices and not rely on others, the government or their children? A reverse mortgage provides independence for home owners 62 and older.

Having one’s own funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever is desired can give that feeling of independence. Being able to pay off a mortgage to improve cash flow to to save one’s home from foreclosure gives one relief and freedoms. Being able to plan and have funds for the future and long-term care needs as well as protecting other assets and/or delaying taking out Social Security are other ways to have independence.

While some assistance may be needed for seniors to remain in their home, not relying on children or the government for help and being able to choose a home care agency of their choice will give them the sense of independence. Using the equity in one’s one with a reverse mortgage can provide seniors the funds for their independence.

“Now I have my dignity back and my independence” was what Edna exclaimed after her reverse mortgage was closed.

Another Minnesota reverse mortgage borrower, Bea, said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure. Being free from monetary anxiety, you have better control over spending your equity.” The reverse mortgage allowed Bea to pay off a mortgage, then to travel to family weddings and reunions. Several years after she initially did her reverse mortgage more recently Bea is using her reverse mortgage funds to pay for home care that is needed to keep her independent and at home.

Ted, age 91 and Anna age 87, Minnesota homeowners, were proud and didn’t want to discuss their financial situation. However, their son-in-law finally talked to them about doing a reverse mortgage. When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor. Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture. The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.” When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal.

Then one day Anna and her daughter were sitting at the kitchen table and Anna shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security. As they were sitting there and looking at the paper, Anna exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation initially and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires. This also improved their dignity.

A reverse mortgage insured by FHA, an agency within HUD, is known as a Home Equity Conversion Mortgage or HECM. As one of the most protected financial options available for seniors, it allows them to use the equity in their home for whatever they need or want. With no monthly mortgage payments, cash flow can be improved by receiving money in monthly payments, a line of credit, lump sum or a combination of these. (Borrowers are still responsible for paying their property taxes and hazard insurance and maintaining the home.)

The title remains in the borrower’s name and the loan is not due until the home is no longer the primary residence, when they die, sell or move or on their 150th birthday. Repaid from the sale of the property, as a non-recourse loan if the loan balance is higher than what the home can be sold at fair market value the borrower or their heirs are not responsible for the difference. If the home is sold for more than the amount due then the borrower or their heirs keep the difference.

As you bring out the red, white and blue, hang your flags and gather with family to celebrate the independence of this great country of ours, ask what independence means to your loved ones. What is needed to help them remain independent and in their home, not relying on the government or on you, their children. Then explore a reverse mortgage, get the facts about them, and see if it might be an option for their situation to maintain their independence. Happy Independence Day!

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1my

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.

TV Show Discusses Facts & Uses of Reverse Mortgages

Posted on September 15, 2015 by Beth Paterson, CRMP

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-1dq

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.

Seniors Find Independence With Reverse Mortgages

Posted on July 2, 2015 by Beth Paterson, CRMP

As we look to celebrating the independence of our county let’s also look at how our seniors can celebrate their own independence. Defined as “sufficient income for comfortable self-support; a competence” at dictionary.com, independence is important to seniors.

When we talk with our clients we hear they want to be able to enjoy their retirement and maintain their lifestyle which includes having their independence. So how can they do this if they are living off their Social Security and if they have retirement investments but they have dropped in value?

Even though as one ages some help may be needed, they can still maintain their independence. A reverse mortgage can help provide this independence. After Edna did her reverse mortgage she said, “Now I have my dignity back and my independence.”

Some instances where the reverse mortgage can help one remain independent include having funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever they desire. The HECM for Purchase also helps seniors have independence. Having funds for the future and retirement and long term care planning is another way the reverse mortgage provides independence.

Or if one needs more help to remain in their home they would have the funds to pay for the assistance from a home care agency to do so. While some additional assistance may be needed seniors can still have a sense of independence if they have the funds to get the additional help and choose the agency they wish.

Seniors have sometimes used their credit cards to fund their lifestyle or pay their bills, others have used a conventional home equity mortgage or a line of credit. And others look for additional cash by applying for a conventional home equity mortgage but don’t qualify.

The reverse mortgage can benefit here too. Interest rates on credit cards are high. Having the reverse mortgage can reduce their dependence on their credit cards. They usually don’t qualify for a conventional mortgage with today’s lending requirements especially since their only income is Social Security. Even if they do qualify or currently have a home equity mortgage or line of credit, they have to make payments which can be difficult on a fixed income or when “life happens.”

Another Minnesota reverse mortgage borrower said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure. Being free from monetary anxiety, you have better control over spending your equity.”

A reverse mortgage is a mortgage with special terms for senior home owners 62 and older to allow them to remain in their home. The loan amount is determined by the appraised home value (or FHA lending limit), the age of the borrower, and an Expected Interest Rate. Let’s review the facts of reverse mortgages:

The title stays in the borrower’s name same as with any mortgage. The borrower owns the home, no one else does.
Income and credit scores are not used to determine the interest rate for the HUD insured Home Equity Conversion Mortgage or HECM, the most common reverse mortgage. Interest rate is determined by the margin and the program chosen.
The borrower may be able to stay in their home as long as it’s their primary residence or until their 150^th birthday.
Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
A borrower won’t lose their home because they can’t make a mortgage payment – they don’t have to make monthly payments. They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
The reverse mortgage funds are generally considered tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
The proceeds are not considered income so Social Security and Medicare are not impacted and one may still be able to receive Medicaid.
The HECM is government insured and funds are guaranteed to be available for borrowers if something happens to the lender.
Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options with the adjustable interest rate program.
There are no out of pocket costs other than the cost of the appraisal.
There are no prepayment penalties.
Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
The loan is non-recourse which means there is no personal liability to the borrower or their estate. The repayment amount is determined by the fair market value at the time the loan becomes due.

Paying off a mortgage on her home, Judy stated, “I truly believe in reverse mortgages, especially for someone like me with a limited income. I received enough from the reverse mortgage to pay off some other bills and still had a little to put into a “line of credit” account. Some of the bills I am paying are credit card debts which have a very high interest rate. It’s a good feeling to be able to do that. It makes bill paying each month less stressful.” Now this is senior independence!

Have a wonderful time celebrating the independence we have in this wonderful country of ours. And keep in mind that a reverse mortgage equals independence 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.

Savvy Senior Sources…Talking With Experts TV Show Released

Posted on May 18, 2015 by Beth Paterson, CRMP

I’m excited to announce the release the new TV show, Savvy Senior Sources…Talking With Experts that I host and produce. The series of TV shows talk with experts for guiding your way through resources A to V in areas that seniors, their families, caregivers, and trusted advisors will find helpful for planning, aging in place with the ability to stay in their homes and remain independent or where to turn if and when going through the transition. The shows give viewers the opportunity to “meet” the trusted providers of senior services before making a phone call to them.

Brought to you from Savvy Senior Sources, LLC, Reverse Mortgages SIDAC and GWG Life, LLC are proud sponsors of the shows.

Please tune in and subscribe to the YouTube Channel Savvy Senior Sources to be notified when the new shows are broadcast. https://www.youtube.com/channel/UCmgVGVbfY6-RcHkeBc7WmPQ/feed

Enjoy the shows!

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.

Food For Thought to Fulfill Key Roles of Social Workers

Posted on March 4, 2015 by Beth Paterson, CRMP

During March we recognize and honor Social Workers for the value they bring to our seniors.

In a variety of roles, with their knowledge and experience in providing resources, social workers assist our seniors. Social Workers are inspiring to improve lives and assisting with problem solving as well as resolving issues that may negatively impact the community. I’d like to offer some food for thought to fulfill their key roles.

Over ninety percent of seniors want to remain in their home. They are comfortable living in the home and community with their memories where they raised their children, know the neighbors, are familiar with the grocery store and the pharmacy. They feel safe and warm in their familiar surroundings. With the home as their identity it gives them comfort being in their long time home. So let’s talk about a couple ways to help fulfill the desires of seniors, improve their lives and help them stay in their home and their community.

Home care services are an option to help seniors who need some assistance to remain in their home. Everything from short time-frames to 24 hour care, including recovery care and respite care or even nursing level of care is available. Home care services can help seniors live at home indefinitely. The one-to-one ratio of care versus 1.5 or more of care per person in a nursing home offers safety.

Their services offer:

Companionship and socialization – home care aides can watch TV with them, play cards, do their hobbies, take seniors to the movies or watch them at home, shopping, or even travel with them.
Ensuring meals are prepared and eaten even providing someone to talk with during the meal
Medication reminders
Bathing, housekeeping, running errands
Escorting to appointments
Anything needed to maintain their life in their home

An assumption is often that one needs to move to assisted living, a nursing home or care center. What is not realized is that rent in assisted living can be $3,000 to $4,000 per month. Additionally home care services are added on to the rent bringing the monthly costs to over $5,000 to $8,000. Nursing home care can run $6,000 to $12,000 a month depending on a single or double room, the facility amenities and level of care.

Wondering how to pay for home care and keep the seniors in their home? A reverse mortgage may be the solution. A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older. Reverse mortgage facts are:

Borrowers own home, no one else does.
Seniors can stay in their home as long as it’s their primary residence (in the case of a couple as long as one is still in the home).
Borrowers won’t lose their home because of a reverse mortgage if they abide by the terms of the loan – they don’t have to make monthly mortgage payments but do need to pay property taxes, hazard insurance and maintain the property or they may face foreclosure.
Funds are generally not considered income for tax purposes.
Loan is government insured and guaranteed to be there for them.
There is no personal liability to them or their heirs when the loan is repaid, as a non-recourse loan the loan is repaid from the property only.
They or their heirs get to keep any remaining equity after the loan is paid off if the home is sold for more than the loan balance.

Consider this…

They can access more funds if their mortgage is currently paid off or has a low balance.
Their cash flow improves when their current mortgage or lien payment is eliminated.
They’ll have extra cash for whatever they need or want!
They can still receive Medical Assistance, Elderly Waiver or other public benefits and do a reverse mortgage.

I have often heard how seniors and their families have benefited from using a reverse mortgage to pay for home care. “Once we realized that we could only relieve the stress on us by contracting 24-hour [at home] nursing care for grandma, a reverse mortgage was the only way to do it.” Liz wrote me. Another borrower, Robert, did not want to go to a nursing home, yet he needed long term care. George, Robert’s son, decided they should do a reverse mortgage to pay for the home health care needed to keep Robert at home where he had raised his children. Robert is happy because he is living where he chooses. George is happy the family can fulfill Robert’s wishes of staying in his home and still receive the needed care.

Ruth had ALS and wanted to stay in her home until she passed. Working with her Social Worker and home care company she did a reverse mortgage. Last week I received a call from her daughter telling me her mom had passed away in her home as she desired. The reverse mortgage had helped her fulfill the dream of her staying in her home and receiving the 24-hour care she needed.

Giving seniors the freedom to stay in their home fulfills their desires of remaining in their home close to their memories and familiar surroundings. Social Workers offering home care and reverse mortgage options fulfill the Social Workers role of inspiring to improve lives, assisting with problem solving and resolving issues as well as having a positive impact on the community.
Happy Social Work Month to all our social workers!

Originally posted in 2010, Updated 2015
© 2010-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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.

Our Experiences with Getting Our Reverse Mortgage

Posted on February 24, 2015 by Beth Paterson, CRMP

Happy With Reverse Mortgage Actual reverse mortgage borrowers have good things to say about their reverse mortgage experiences. Let me share what some of our Minnesota reverse mortgage borrowers have said.

Dave shared, “Having had an accident that eliminated my of my teeth, total dental implants was required. Without a reverse mortgage I could not have raised the money to have the implants done. It was a great relief to be able to smile again and eat sweet corn again.”

To increase his cash flow Bernie did a reverse mortgage and had this to say, “After talking with 2 other reverse mortgage representatives, receiving apologies for non-functioning DVDs, and talking to an attorney, I chose Reverse Mortgages SIDAC. It is so helpful to deal with local persons. Both Beth and Steve followed up with everything. They were very helpful in personal visits and phone calls. Beth has also been helpful with other senior issues.”

Larry and Karen* did the reverse mortgage to stabilize their finances. They found Reverse Mortgages SIDAC to be friendly, courteous and respectful of them. Additionally they shared they found that all pertinent information was discussed regarding reverse mortgage options and costs and the details were explained so they understood them. They also felt that they were informed of what to expect during the processing and kept informed of the status through the process. In addition they said they received explanations of the forms that were signed at closing. Overall they shared their experience was positive.

Mike shared, “Without the help and knowledge of Beth Paterson who first told me about the reverse mortgage to buy I would never have been able to get our beautiful new townhome, which my wife needs because of her mobility to navigate a lot of stairs. I owe Beth a big debt of gratitude. She is the best! She is knowledgeable and she cares and worked tirelessly for us.”

Wayne recommends us stating, “Reverse Mortgages SIDAC is very customer focused and will settle for no less than what the applicant request’s objectives are. They knew the “system” very well and lead the borrower though it step by step. Above all, Reverse Mortgages SIDAC is respectful and honest.”

Helping them out of foreclosure, Gary and Cathy* said, “Thanks so much! Beth and Steve you guys are the best!”

Satisfied Reverse Mortgage Borrower Yvonne wrote, “My experience with Beth and Steve was very enjoyable. I was always able to reach one of them. I paid off my mortgage, so eliminated the monthly mortgage payment! It has made a big difference in my quality of life to have that additional income every month.”

To supplement her income, Marilyn did the reverse mortgage, sharing, “I didn’t really want to have to do this reverse mortgage because I’m too proud. But thank goodness it was there for me. Steve was so very helpful as was Beth. At closing all documents were in order perfectly. I’m very glad I reached out to this company. Everything went so well.”

Bonnie did the reverse mortgage to “secure my retirement” allowing her to retire. Of her experience she said, “Beth and Steve were wonderful! Caring, efficient, thoughtful. All are words that describe them and their service – I had contacted a nationally advertised company but did not feel at all comfortable with them. I went with Reverse Mortgages SIDAC because they are local and knowledgeable about Minnesota and my needs here.”

“Having Beth and Steve to guide me through every step of the process was the blessing that made a reverse mortgage possible. We were able to complete the process in time to obtain the maximum possible funds under the old system, making my dream of remodeling possible,” Matthew stated.

These are just a few of the experiences reverse mortgage borrowers have had. Keep them in mind as you hear about reverse mortgages and are considering one. Work with a reverse mortgage originator who is local, specializes and has experience in reverse mortgages, is ethical adhering to the NRMLA pledge and takes their time to give you the details so you understand the reverse mortgage and will have a positive experience and find the benefits. If you’re in Minnesota, give us a call.

*Some names changed to protect privacy.

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.

Memories Created for Reverse Mortgage Heirs

Posted on April 18, 2014 by sidac

On a Friday I received a call from the niece of one of my Minnesota reverse mortgage clients telling me that Bob had passed away. After extending my sympathies I answered her questions and helped her understand the process now that the loan is due. As I talked with Bob’s niece she shared how loving Bob was and how the FHA Home Equity Conversion Mortgage (HECM) reverse mortgage not only benefited him but also allowed for him to create numerous memories for the family.

During our conversation I shared some memories of my meetings and conversations with Bob and his perspective on how the reverse mortgage had made a difference in his life. Bob had called me after his trip to Yellowstone with a nephew telling me what a wonderful time he had had and how happy he was to be able to take the trip. During another conversation he had said he had remodeled his home to be adapted to be wheelchair accessible. He had also shared how much the reverse mortgage had given him his independence and the ability to remain in his home where he wanted to be with his dog. I originally shared Bob’s stories in my blog “Reverse Mortgage Helps Minnesota Senior To Be Prepared for Future.”

Apparently Bob’s wife who had proceeded him in death limited Bob from fulfilling his dreams. It appeared it had to do with not having much money but also her attitude. With the reverse mortgage he had money like he never had before. He would tell his niece, “I don’t know how it is that I have money now when I never did before.” She said he became energetic and interested in life.

The family’s perspective of the trip to Yellowstone was that it had not only been a wonderful experience for Bob, his young traveling partner had an experience of a lifetime with his uncle and has memories of the trip to treasure. I was told the expressions on their faces upon their return were smug and they were keeping secrets that will likely never be shared like “little boys” do.

Bob bought gifts for family members like a vacuum cleaner for someone who needed it but didn’t have the funds to purchase it on their own. What a good feeling it must have been for Bob to be able to help his family.

He bought tickets to take family members to movies and plays. I was told that one of those experiences was taking his niece’s family to the play “Sleeping Beauty.” As they were sitting in their seats the niece looked over and saw the pleasure in Bob’s face as he was watching the expressions on the faces of his family. What a memory to treasure! This was only one of several of these types of adventures and memories for Bob and his family. The pleasure for the family was the kids got to know an uncle and share time with him as they had not been able to previously.

Having less funds available when the loan is due and payable or less of an inheritance is a negative of the reverse mortgage. But using the funds and creating the memories by spending time together or giving the gifts and seeing the difference it makes while one is still alive can be a treasure which can never be replaced.

As his niece shared the stories I got tears in my eyes. The reverse mortgage had not only changed Bob’s life but the lives of an entire family. Just before we were hanging up, Bob’s niece said, “Thanks for loving my uncle too.”

Providing security, independence, dignity and control for our seniors is why I believe in reverse mortgages and am in this industry. It’s a blessing for me to be able to help seniors and their families. And I do love my clients and hearing their stories.

For the details and facts on reverse mortgages visit our website, www.RMSIDAC.com.

First posted in 2011, re-posting 2014
© 2011-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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 Mortgage Borrowers Remain in Control

Posted on April 9, 2014 by sidac

When sitting down with a new prospect the other day I asked what they had heard or thought about reverse mortgages. Bob responded that reverse mortgage borrowers lost control of their home and their money. Have you heard this too? I want to correct this misconception for you.

Reverse mortgage borrowers remain in control of their home. They own the home, title remains in their name, just like with any mortgage.

They have the option to paint the home the color of their choice, plant trees or landscape as they choose, and to decorate the inside as they desire (or not make changes).

I had one borrower ask if they could paint their house purple. With a chuckle I responded they could although the neighbors may not like the color purple. The point is, as the homeowner they have the option to choose what color they want to paint their house.

Borrowers are, however, responsible for maintaining the home. This is to the homeowners best interest anyway, and whether they have a reverse mortgage, a conventional mortgage or no mortgage at all. Maintaining means things like no bare wood or chipped paint, roof replaced when needed, foundation and structure is sound, electrical and plumbing in working order.

In their will or trust the reverse mortgage borrowers still choose who will inherit the home or equity of the home.

While the reverse mortgage borrowers will be using the proceeds for their needs or wants during the term of the loan, when the home is no longer their primary residence, the loan is due and payable. The loan is generally paid back from the sale of the home with no personal liability to the borrower or their heirs. If the home is sold for more than the loan balance the borrower or the heirs receive the difference.

If an heir wants to keep the home, they have this option – they would just need to pay off the reverse mortgage balance. This can be done through a conventional mortgage, their own funds or if they were the beneficiary on an insurance policy.

Note that if the loan balance is higher than the fair market value, the borrower or their heirs only need to pay 95% of the fair market value of the home, they do not need to come up with the difference. With the FHA HUD insured Home Equity Conversion Mortgage (HECM) the FHA Mortgage Insurance will cover the difference for the lenders.

They have the option to sell when they want and choose the real estate agent. If they have passed away then their estate chooses the real estate agent.

The way one wants to receive their reverse mortgage proceeds is also their choice. They can receive the funds in a line of credit, monthly payments, lump sum or a combination of these.

And how they use these funds is in their control – lenders cannot dictate how one spends the proceeds from their reverse mortgage. Borrowers can and have used their reverse mortgage funds to pay for home repairs, purchasing a new car, traveling, home care or whatever one needs or wants… it’s their choice.

The reverse mortgage provides control for borrowers to have funds so they can make their own choices. For example, where they want to live (in their own home vs government subsidized housing), who they want to care for them (vs the government deciding which home care agency they can use).

Reverse mortgage borrowers do remain responsible for paying their property taxes, having home owners insurance, maintaining the property and paying home owner association dues if applicable, just as they do with or without a conventional mortgage.

Losing control of your home or money with a reverse mortgage is a misconception. In reality reverse mortgage borrowers have control and in some cases even more control than without doing a reverse mortgage; having funds available gives them more choices and options.

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.

Think you don’t need a reverse mortgage? Think again… Maybe you’ll WANT one.

Posted on February 23, 2014 by sidac

I sometimes have people say to me they don’t need a reverse mortgage. Have you said or thought this? Have you thought a reverse mortgage should be a last resort or one should wait until they are older before doing one? Let’s explore how a reverse mortgage can help you with your retirement planning and long term care planning needs. And why doing a reverse mortgage now rather than later may be to your advantage. You might then decide you want one.

A reverse mortgage is a mortgage like any other mortgage, using the equity in one’s home, but has special terms for homeowners 62 and over. There are no income or credit score qualifications for the interest rate and no monthly mortgage payments required. Homeowners maintain the title; the reverse mortgage lender does not own the home. Borrowers are responsible for paying their property taxes and insurance as well as maintaining the home. Reverse mortgage borrowers are highly protected – more so than with any other loan.

The Loan Amount, referred to as the Principal Limit, of the HUD insured Home Equity Conversion Mortgage (HECM) reverse mortgage is based on the age of the youngest borrower, the lesser of the home value or FHA Lending Limit, the program chosen and the Expected Interest Rate. HUD allows certain types of properties to qualify: single family homes, duplexes or 1 to 4 unit properties as long as the home owner is living in one of the units, townhomes, FHA approved condos, and manufactured homes that meet HUD’s requirements.

Let’s compare doing a reverse mortgage now to waiting before doing your reverse mortgage.

	TODAY	10 Years from Now	Barb wrote: “Having a Reverse Mortgage has given me monetary independence and I never realized how important having cash available would be until I fell in October 2013 and broke my right shoulder. Without the Reverse Mortgage money I would have been ‘up a creek without a paddle’. Financial independence saved the day.”
AGE	63	73
HOME VALUE	$200,000	$263,000 (based on Moody’s Analytics Factors)
AVAILABLE (Approximate net after fees)	$92,729	$130,626*
Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1^st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%. The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan. Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%. Actual Line of Credit Grows based on current interest rate plus 1.25%. So if interest rate is higher, funds in the line of credit will grow faster. These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

* If the interest rate is higher, and it is likely that it will be in the future, less funds would be available.

While it may look like it’s to your advantage to wait until you are older, look at what happens if you do the revolving credit reverse mortgage now and leave the funds in a line of credit for your future use.

Funds in the reverse mortgage Line of Credit grow and this is the advantage of doing the reverse mortgage now. Here’s an example of future funds available if at the age of 63 you draw less than 60% in the 1st 12 months and you have $92,729 in your line of credit initially:

Line of Credit Available*	No Draws	After Draw of $5,600 Each Year	Jerry stated, “The Reverse Mortgage enables us to live in our home without mortgage payments. Line of credit will grow for our future needs. The whole package is a win-win for my wife and me.”
Age 68	$136,488	$92,557
Age 73	$188,364	$101,624
Age 83	$358,756	$134,739
Based on open-ended credit with current Expected Interest Rate of 5.21%; Closing costs of $5,871 plus FHA up-front Mortgage Insurance Premium of .5%; drawing 60% or less in 1^st 12 months; annual FHA Mortgage Insurance Premium (MIP) is 1.25%. The Expected Rate is used to calculate the Principal Limit/Loan Amount and for estimated projections on the loan. Growth Rate in this example based on assumption of Expected Interest Rate of 5.210%. Actual Line of Credit Grows based on current interest rate plus 1.25%. So if interest rate is higher, funds in the line of credit will grow faster. These are estimates, the actual amounts are based on many factors. Different assumptions would result in different numbers.

Consider the amount you will have in the line of credit available for your retirement needs or long term care needs when doing the reverse mortgage now.

You can pull all or some of the line of credit funds out as you desire or the payment plan can be changed during the life of the loan, for example, you may change from having some or all of your funds in the line of credit to receiving monthly payments.(1)

Even when you use some of the funds each year you will be taking advantage of having the additional money you need annually plus still having funds in your line of credit for future use.

The Principal Limit or Loan Amount is based on age with the older one is receiving more funds. At the current Principal Limit Factors the increase is approximately 1% for each year. This is lower than the line of credit growth rate. With this taken into consideration, in just 5 years the funds in the line of credit with no draws will likely be higher than if you wait the 5 or 10 years to do a reverse mortgage.

Lucy* stated, “Having done the reverse mortgage has given me a new sense of security.”

Have No Monthly Mortgage Payments, Lower Interest Expense, Funds for Needs or Wants for Retirement Planning or Long Term Care Planning or Needs

In addition to a lower interest rate(2) with a reverse mortgage, eliminating your monthly payment will improve your cash flow because you don’t have to pay out that monthly payment each month. While the loan balance will rise because you are not making payments, the reverse mortgage is non-recourse which means there is no personal liability to you or your estate if the loan balance is higher than what the home can be sold at fair market value in the future. When the loan is being repaid, if the loan balance is lower than what the home can be sold for, the borrower or the estate receive the difference.

You have the funds to use during the term of the loan for whatever you need or want. By doing the reverse mortgage earlier you have use of funds that otherwise would go toward your monthly mortgage payments. Why not improve your cash flow sooner than later?

You do have the option of making payments with your reverse mortgage – it’s just not required. You can choose when, how often and how much you want to pay.

If you make the payment(s) on the reverse mortgage, the payments will reduce the loan balance. And with the adjustable rate, open-end reverse mortgage the payment will increase the Line of Credit meaning the funds are available in the future. And over time the funds available are likely to exceed the home value at the time the reverse mortgage was initiated. Additionally, using Moody’s Analytics, the line of credit is likely to grow faster than the home is appreciating.

Consider if you do the reverse mortgage now, let the line of credit grow and in 8 years you have a medical situation. If you have a conventional mortgage you’ll have to balance paying mortgage payments with paying medical bills. With the conventional mortgage if you don’t pay your mortgage in a few short months you are likely to be facing foreclosure.

If you are choosing to make monthly mortgage payments on the reverse mortgage, you could stop the payment being they are not required and therefore eliminating the risk of foreclosure from not making the monthly mortgage payments. You have the option of resuming making payments if you choose. You still need to pay your property taxes, keep hazard insurance on your home and pay home owner association dues if applicable.

Take advantage of doing the reverse mortgage now while the interest rate is low. And then when the interest rate does increase, the line of credit will grow even faster (the growth rate is determined by the interest on the loan plus 1.25%). The line of credit will grow regardless of the home values increasing or decreasing.

In waiting to do a reverse mortgage until you feel you have a need, you are taking risks. For example:

Reduced Loan Amount or Principal Limit

Over the last few years HUD has reduced the calculation of the Loan Amount (Principal Limit). We don’t know if HUD may find it necessary to decrease this again and/or increase the FHA Mortgage Insurance Premiums. Waiting may mean less funds are available if HUD reduces the Loan Amount or Principal Limit.

Higher Expected Interest Rates Equals Less Funds Available

With FHA Reverse Mortgages the Expected Interest Rate is calculated weekly and is used to determine initial funds available. The Expected Interest Rate is considered a long term projection of future interest rates. As the Expected Interest Rate changes to a higher rate, in the future less initial funds could be available to borrowers. It is unknown as to the timing of when the rates may rise but at some point they will likely go up.

Properties that qualify

HUD already has restrictions on condos that are not FHA approved making it difficult to do a reverse mortgage on condos. (The spot condo approval was removed in 2010.) We are seeing lenders add manufactured homes, log homes, berm, and rural homes to their list of ineligible homes. While there are still some lenders who continue to lend on these properties based on HUD’s requirements, this may change in the future and they are likely to tighten the underwriting requirements for these types of properties. If you are in one of these properties you should look at doing a reverse mortgage now while it’s still an option.

Higher Valued Home Owners Should Do A Reverse Mortgage Before The Lending Limit Is Reduced

Currently the FHA HECM (Home Equity Conversion Mortgage) Lending Limit is $625,500. At some point this rate could be reduced to a lower national limit or be based on a lending limit in the county where one lives (as is currently with a Forward FHA). What this means is that if your home is valued more than the Lending Limit amount you can receive is based on the Lending Limit rather than the home value. For example if your home is appraised at $700,000, currently we would use $625,500 to determine the reverse mortgage Principal Limit. A lower Lending Limit would make a big difference on the amount one can receive. If you have a higher valued home look at doing your reverse mortgage now instead of waiting.

What would it be like for you to have security knowing you readily have funds available in your Line of Credit during your retirement years and the benefit of improved financial health?

You may not need a reverse mortgage now but it may benefit your retirement and long term care planning if you do one now.

(1)Consult with an Elder Law Attorney or financial consultant regarding the impact of pulling all your funds from a line of credit will impact Medicaid.
(2)Historically the HECM open-end credit reverse mortgage interest rate has been lower than what one can generally qualify for with a conventional mortgage.

Some information used in this article obtained from nu62(sm)

*Name changed to protect privacy

*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future

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