Category Archives: MN Reverse Mortgages

But Wait, There’s More… Reverse Mortgage Facts The Media Needs To Know

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Man reading newspaperWith the fear factor and incorrect information the media is publishing, seniors don’t even want to include a reverse mortgage with other options they are considering to determine which would be the best for their situation.  Unfortunately they just assume the reverse mortgage shouldn’t be done and that any other option would be a better decision.  Maybe another option would be best, maybe not.  The media needs to stop throwing the baby out with the bathwater and let the decision be based on the facts of the reverse mortgage, not on a fear factor.

The media and politicians need to stop assuming that a conventional mortgage or HELOC is available to seniors.  Generally seniors don’t qualify for these loans.  And even if they do, they too have costs similar to the reverse mortgage, a higher interest rate than the reverse mortgage, and risks to the homeowner and the lender when “life happens” and payments can’t be made.  Even if they do qualify today, what happens in six months, a year, two years or five years when they can’t make the payment?  Doing the reverse mortgage instead of a conventional mortgage or HELOC is generally a better option for seniors.  Read “Is Waiting To Do A Reverse Mortgage The Best Decision?”

Reverse mortgages are not riskier or more complex than any other financial decision made by seniors, or anyone else for that matter.  In fact, NOT getting a reverse mortgage could be riskier for a senior.

Homeownership offers more benefits than renting.  One owns the home, and can benefit from the equity.  If renting, one has the expense of monthly payments and covering utilities (whether included in the rent or separate) and insurance.  If a senior does the reverse mortgage, payments are not required which improves their cash flow (no mortgage or rent payments).  The amount of their utilities, taxes, insurance and maintenance of their home is probably less than monthly rent of another property and they are at the mercy of future escalating rental rates.  If they can’t afford the rent payments where are they going to live?  On subsidized housing?  The reverse mortgage allows them to stay in the home without monthly payments and allows them control and choices of their living conditions.

Reverse mortgage borrowers are, however, still responsible for paying their taxes, insurance, and maintaining the home as they would be under any circumstances.  If they don’t pay taxes the county can foreclose, if they don’t have insurance and there is a fire or other destruction to the home, they won’t have a home, if they don’t maintain the home and it becomes really run down the city may fine and/or evict them whether or not they have a reverse mortgage.  If they are renting and can’t pay the rent they would be evicted.

Another common statement is the reverse mortgage has high closing costs – compared to what?  What other financial option is available that offers seniors the same benefits?

It shouldn’t be considered a loan of last resort.  As Mary, one of my borrowers who used the loan in order to retire stated, “When you retire is IS the last resort – you no longer have that income coming in.”  So what do you consider a last resort?

That reverse mortgages could be the “next sub-prime” mortgage is another fear the media and politicians are forcing on all of us with no substantial or viable comparisons.  Don’t let this keep you from a reverse mortgage, read my article, “Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In A Lender.”

The reverse mortgage has protections unlike any other loan or financial option.  Borrowers are required to go through third party HUD approved counseling which reviews the program, costs, positives and negatives, risks, and other options that may be available for them.  HUD is implementing a new counseling protocol for added protections.

Enjoying Life with Their Reverse Mortgage

Enjoying Life with Their Reverse Mortgage

Let’s review the facts of some benefits a reverse mortgage provides:

  • The title stays in the borrower’s name same as with any mortgage.  The borrower owns the home, no one else does.
  • The borrower may be able to stay in their home as long as it’s their primary residence or until their 150th 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 of a reverse mortgage – 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 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 can receive Medicaid.
  • The HECM is government insured and guaranteed to be available for borrowers. (Currently proprietary reverse mortgages are not available or are limited by county and city offerings.)
  • Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
  • Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options.
  • There are no out of pocket costs, income or credit qualifications for the reverse mortgage.
  • There are no prepayment penalties.
  • Seniors can have money for covering their everyday living expenses, making home repairs, covering medical expenses, paying for long term care, paying taxes and debts, paying off their current mortgage to improve their cash flow, buy a new car, taking a desired vacation or visiting children who live out of town.
  • The reverse mortgage has helped many seniors save their home from foreclosure.
  • The reverse mortgage gives seniors their security, independence, dignity and control.

Ed wrote, “Our reverse mortgage is great.  Gives us some elbow room.  Special thanks to you.”  Now these are the facts the media should be using!

© 2009 Beth Paterson http://bethsreversemortgageblog.wordpress.com 651-762-9648

The Media Needs The Reverse Mortgage Facts!

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ManReadingThe media paints a negative picture of reverse mortgages by using incorrect or misleading information.  It’s unfortunate and frustrating from the standpoint that this scares people from getting the facts and making a decision based on the true facts.  A recent example of this is the September issue of Consumer Reports and TV interviews based off the Consumer Reports article.

Consumer Reports starts out with a story about Mr. Minor who is facing losing his home after his wife passed away, implying it was because of a reverse mortgage.  As you read later in the article, Mr. Minor was not 62 when a reverse mortgage was done on the home with his wife who was over 62 as the borrower.  He was under the impression that his name could be added on the title when he turned 62.

The fact is that when a couple is doing a reverse mortgage with a non-borrowing spouse (Mr. Minor in this case because he wasn’t 62 at the time of the origination of the reverse mortgage), lenders require the non-borrowing spouse sign documents stating they are aware they may lose the home when the older spouse is no longer in the home as their primary residence.  This would also be covered with the required counseling and then again at closing.  It is unfortunate that Mr. Minor had a wrong impression or may have been told incorrect information from a loan officer.  Being told this information is a very rare circumstance – so the loan officer should be addressed, not the whole reverse mortgage industry blasted with negative media.

Mr. Minor says he was misled that the reverse mortgage was a good way to pay his wife’s medical bills.  So if they didn’t do the reverse mortgage, how would they have paid the medical bills?  Obviously the funds they received did benefit them to pay those medical expenses.

This article states that Mr. Minor owes more than the home value implying that the reverse mortgage caused this.  What is not pointed out here is the fact that Mr. and Mrs. Minor would have used those funds during the term of the loan.  If funds aren’t used, they are not part of the loan balance that has to be repaid, they remain equity in the home.  Whether to pay medical bills, medications, home care, daily living expenses or used to pay off a current mortgage (eliminating the mortgage payments so they had those funds for other uses), the majority of the loan balance was used by them.  The rest of the loan balance would have been for interest, FHA Mortgage Insurance Premium (MIP), and servicing fees.  Any loan has interest and servicing fees, whether a home loan, auto loan, bank line of credit, or even credit cards.  Have you added up what you paid in interest expense over the term of your loan(s)?  Yes, you are making payments so the debt is reduced over time but you have paid the interest.  And with the reverse mortgage payments aren’t generally made so loan the balance increases to be paid when the home is no longer the borrower’s primary residence.

Another fact that is often not stated or misstated is that the reverse mortgage is non-recourse.  This means there is no personal liability to the borrower or the estate if the loan is being paid off and not kept by the borrower or the estate.  So even if the loan balance is $200,000 and the home now can only be sold for $130,000, the lender is paid the $130,000 and the FHA Mortgage Insurance covers the difference.

Often called complicated, the reverse mortgage is a mortgage and while different than a conventional mortgage, they are not any more complicated than any other loan.  Seniors take out conventional loans and don’t necessarily understand all the terms or risks of these.  One risk on a conventional loan is that they may not be able to make the mortgage payment at a future date when “life happens.”  Borrowers may then face foreclosure.  Whereas the reverse mortgage helps seniors save their home from foreclosure.  There are many loan documents to help disclose all the details.  Additionally borrowers are required to receive counseling from a third-party to explain the loan details, this isn’t required with any other type of loan for seniors.  I have consistently been told that my book, “Understanding Reverse Mortgages,” and my education and explanations make it easy to understand.

Other misleading or misconstrued statements include the reverse mortgage is not right if the children want to keep the home.  While the loan will need to be repaid for the children to keep the home, they may still keep the home.  Let me tell you about a borrower who needed new glasses, teeth, clothes, and some home repairs.  She loved going to plays yet couldn’t even afford the local community plays.  She decided the reverse mortgage would help her afford her needs and enjoy her life.

After we had reviewed all the facts, positives and negatives, and she had completed the application, she called and said she wanted to stop the process because her son didn’t want her to do the reverse mortgage.  When I asked why, she said he wants to keep the house after she’s gone.  Upon further questioning she said it was so he could have the house and rent it out after she was gone.

My response was to ask, “So you’re going to do without your glasses, teeth, clothes, home repairs, affording the little things you enjoy so your son can make money after you are gone?”  I went on to ask, “Is he going to cover all these expenses of things you need now?”  Of course the answer to this question was, “No, he can’t afford to.”  I explained that he could still have the house after she was gone, he would need to pay off the mortgage balance, maybe by getting a new mortgage but then he could rent it out and make money on it that way.

Celebrating her reverse mortgage

Celebrating her reverse mortgage

She went ahead and did the reverse mortgage.  I have received a call from her a couple times a year since she closed her loan 4 years ago.  She is pleased that she did the reverse mortgage and the difference it’s made in her life.  And when she passes away or is no longer in the home, her son has the option to pay off the mortgage balance and keep the home.  In the mean time she’s had the use of funds to meet her needs and make her life enjoyable.

There is a statement that taxpayers are making up the difference on default loans or will need to in the future.  The fact is that borrowers pay a FHA Mortgage Insurance Premium to cover any defaults.  Unfortunately the MIP was put in the general fund and now there is a risk that there may not be enough funds for the current fiscal year.  Plenty of borrower paid MIP dollars have been paid into FHA over the years but unfortunately the federal government doesn’t hold these funds in escrow type accounts as they use these funds for other general HUD programs.  If these funds had been accumulated and reserved for the HECM, this would be a non-issue in the current year.  This issue is brought on by the way the government manages these funds.

Other misrepresented statements are about closing costs being high.  Please see my post “Reverse Mortgage Closing Costs – High or Mythical?” for the facts on this.

Regarding the media’s statements that the reverse mortgage should be a last resort read “AARP Has It Wrong About Reverse Mortgages” and “Reverse Mortgages Help Celebrate Independence.”

The media needs to provide the facts, not use scare tactics.  When borrowers have the facts, the decision to do the reverse mortgage can be made intelligently.  And, as with the hundreds of thousands satisfied reverse mortgage borrowers, those deciding to do the reverse mortgage based on the facts will find their life is much better, living with security, independence, dignity and control and a peace of mind.

In fact, today I received a call from a borrower who said, “I could not pay my bills without my reverse mortgage.  I’m glad I did it to maintain my lifestyle.”

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-55

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.

Is Waiting To Do A Reverse Mortgage The Best Decision?

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Happy Minnesota Reverse Mortgage Borrower

Mary, A Happy Minnesota Reverse Mortgage Borrower

Let me introduce you to, Mary, a Minnesota Reverse Mortgage borrower whose home value, as most homes, had decreased over the last few years.  While she didn’t have any mortgages to pay off and didn’t have immediate needs for the funds she decided to do a reverse mortgage now instead of waiting.  Her decision was based on the fact that if she waited her home value may continue to decrease whereas if she did the loan now she would have the funds in the line of credit for future use and they would grow so more funds would be available when she needs them.  Additionally if she waited the Expected Interest Rate (used to determine how much can be loaned) may be higher making less funds available to her to her in the future.

Over the last few months we have talked with seniors whom we originally talked with 2, 3 or 4+ years go and had educated them about the reverse mortgage option.  At that time they decided to wait and not do a reverse mortgage.  Some even did a conventional mortgage or what we in the industry call a “forward” mortgage.  Now “life has happened” and they decide they now want to do the reverse mortgage.  Unfortunately with many of these seniors we have to tell them the sad news that less funds are available now and in some cases there aren’t enough proceeds to pay off their current mortgage, sometimes they are short $20, 000, $30,000 or more.  This is due to decreased home values and changes in the Expected Interest Rate, the interest rated used to determine how much can be loaned.  We are finding this can also be the case for even those we talked with just 6 months ago.

Let’s compare doing a reverse mortgage now to waiting 5 years before doing your reverse mortgage.

To determine how much is loaned with a reverse mortgage we use your age, your home value, and Expected Interest Rate.  With FHA Reverse Mortgages the Expected Interest Rate is calculated weekly by the Federal Government and is used to determine initial funds available.  The Expected Interest Rate is currently based on the LIBOR SWAP, as this 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.

While home values are a little lower right now  home values will most likely rise in the future.  It is also likely 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.  For example:

TODAY 5 Years from now Initial Interest Rate is currently below 4%
AGE 70 75
HOME VALUE $200,000 $225,000
*Based on Expected Rate of 7.14 8.14
AVAILABLE (Approximate net after fees) $92,710 $88,199
DIFFERENCE $4,511
These are all estimates.  Different assumptions would result in different numbers.  Interest rates are based on rates of 8/4/09.

Keep in mind, funds left in a Line of Credit grow. So if you have $92,710 in your line of credit today, in the future you could have more funds available to you.  Here’s an example:

Line of Credit Growth* No Draws Draw $4,000 each year
Today $92,710 $92,710
Year 1 Balance $96,515 $92,515
Year 2 Balance $100,476 $92,312
Year 3 Balance $104,600 $92,101
Year 4 Balance $108,893 $91,881
Year 5 Balance $113,362 $91,662
*Growth Rate based on Assumption of Expected Interest Rate of 3.529% in this example.  Actual Line of Credit Grows based on current interest rate plus .5%.

Consider having security knowing you readily have funds available in your Line of Credit without paying additional closing fees in the future.  When you use the funds each year you will be taking advantage of having the money you need during your retirement years and the benefit of improved financial health.Happy Minnesota Reverse Mortgage Couple

As 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.”

Let’s look at a scenario if you are currently making payments on a mortgage, lien, or bank line of credit. There is still an advantage to doing the reverse mortgage now.  As an example, if you owe $75,000 and are paying 7% interest:

Interest Expense for next year on your current loan $5,422
Interest Expense based on reverse mortgage rate of 4% (4% is the approximate current interest rate on the adjustable rate program)
Plus .5% for FHA Annual Mortgage Insurance Premium (MIP)		 $3,446
Interest Expense based on reverse mortgage fixed rate of 5.56%
Plus .5% for FHA Annual Mortgage Insurance Premium (MIP)		 $4,673

In addition to lower interest with a reverse mortgage, eliminating your monthly payment will improve your cash flow. 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 for if you or your estate are not retaining ownership.

My borrower, Mary was happy with her decision to do her reverse mortgage sooner than later because she now has security knowing she has funds available for her needs, independence to live on her own without relying on others for financial support, she’s maintained her dignity of being able to pay her own bills, and continues having control of her life and the ability to make her own choices.

Waiting to do the reverse mortgage may not be the best decision.  Doing a reverse mortgage now may be more beneficial.  Are you ready to live with more now?

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-4h

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.

When you don’t know what you don’t know about reverse mortgages

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Are you basing your opinion of reverse mortgages on what you and others don’t know?  People say they’ve heard a lot of negatives about reverse mortgages or that they should stay away from them.  When I ask what they’ve heard or why they were told to stay away from them, I get the answer, “I don’t know, I was just told to stay away from them.”  Or they really don’t know much about them yet they are still negative about them.  After I spend time educating them on the facts of reverse mortgages the response becomes much different: “Wow, this could be a life saver for me.”  Or “That sounds wonderful.”  And my clients who have their reverse mortgage in place are thrilled and pleased on how it’s changed their lives for the better – giving them security, independence, dignity, and control.

Don't know what I don't knowSo my question to you is do you know the facts about reverse mortgages or are you basing your opinion about reverse mortgages by listening to the negatives and incorrect statements from those who don’t have the real details?  If you were having health problems, would you listen to a plumber about what you should do about your health or would you go to a doctor who specialists in the area of need for the facts?  The reverse mortgage is the same, get your facts from a reverse mortgage expert, not the media, politicians, a real estate agent, your neighbor, friend or anyone else who isn’t a specialist in reverse mortgages and can provide the true facts.

The media often has someone they call an expert from the financial or real estate industries talk about reverse mortgages as if they know what they are talking about.  However, those of us specializing in reverse mortgages find a lot of incorrect and misleading statements by these so called experts.  They too don’t know what they don’t know because they don’t consult with the true experts in the industry before giving information.  Politicians who are trying to protect seniors haven’t learned the real facts about reverse mortgages so they too are giving advice and/or a fear factor based on what they don’t know.  If they would talk with the experts they may do a better job of providing the facts versus spreading myths.

As a senior advocate and an expert who has specialized in reveres mortgages for 10 years, let me help you get some of the real facts.  Do you know…

  • A reveres mortgage is a mortgage with special terms for senior homeowners 62 and older.
  • You own the home, no one else does.
  • You may be able to stay in your home as long as it’s your primary residence or until your 150th birthday.  (You are responsible for paying taxes, insurance, and maintaining the property and abiding by the terms of the loan agreement.)
  • You won’t lose your home because of a reverse mortgage – you don’t have to make monthly payments.
  • Tax-free money* is government insured and guaranteed to be there for you. (*consult tax advisor – but make sure they know the facts about reverse mortgages)
  • You or your heirs get to keep any remaining equity after the loan is paid off.
  • There is no personal liability to you or your estate when repaying the loan and you or your estate are not retaining ownership.
  • There are no out of pocket costs, income or credit qualifications for the loan.
    • Closing costs typically become part of the loan balance.
    • A credit report is pulled to check for any federal leans or debts that would be required to be paid – not to check your credit score.
  • You can’t access 100% of your home value at the time of your closing – the amount available is based on your age, you home value or FHA lending limit (currently $625,500), and an Expected Interest Rate.
  • The funds may be received in a line of credit, lump sum, monthly payments or a combination of these.
    • Line of credit grows
    • Monthly payments may be received as tenure payments (for life as long as the home is your primary residence) or structured to fit your needs.
  • Historically the interest rate is lower than conventional loans.
  • Closing costs are comparable to conventional loans, in the big picture they are not higher – see my post: “Reveres Mortgage Closing Costs – High or Mythical”
  • The majority of the loans are FHA insured (proprietary products aren’t currently offered in Minnesota).
  • There is no magic number for how long you should live in your home – it all depends on your individual circumstances.  However the longer you stay in your home the less expensive it becomes because the closing costs get spread out over a longer period of time (same for conventional mortgages).

While a reverse mortgage isn’t right for everyone, every one should at least know the real facts to determine if a reverse mortgage is right for their situation.  Don’t go the plumber for your health problems.  And don’t go to the media, politicians, a real estate agent, your neighbor or anyone else who doesn’t specialize in reverse mortgages for you to make an educated decision about reverse mortgages — learn the facts from a true reverse mortgage expert.

Retired woman enjoying the security, independence, dignity, and control of her reverse mortgage

Having the facts my borrowers are thrilled with their reverse mortgage.  I’ve been told, “You’re an angel.”  “You gave me my life back.”  And as Sylvia, wrote:  “As a senior citizen, I had been having some concerns with my finances. Being on a limited income made much needed household repairs and property tax payments very difficult to meet.  I was going to have to make a choice soon about whether to continue to live in my house, or move on to an apartment.  The costs of continuing to live in my home were getting beyond my means, but I wasn’t ready to leave the home that I had raised my children in.  I decided to use the equity in my house to make life easier and meet the financial obligations that I had.  Beth Paterson was my representative.  She was so easy to talk to and walked me slowly through the entire process.  She was always there to answer any questions that I had, and continues to even long after the closing!  It was a wonderful experience.”

Base your decisions on what you know from a reverse mortgage expert, not what you or others don’t know.

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-3F

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 Help Celebrate Independence

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Flag-USJuly 4th we celebrate Independence Day in America honoring the day our country signed the Declaration of Independence.  Signing the reverse mortgage documents is a way for seniors 62 and older to sign their own declaration of independence.

Independence is defined as “freedom from the control, influence, support, aid, or the like, of others.”  This fits senior’s attitudes, they want to maintain control of their life, make their own decisions and not depend on others for assistance.  They may be short funds for maintaining their lifestyle and sometimes they will eat cat or dog food because it is cheap and they do not want to rely on their children.  Yet I’ll hear, “I want to leave my house as an inheritance to my children.”

Let me share a story of one of my clients, I’ll call them Ted and Anna.  He was 91, she was 87.  Being proud, they 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 the mother and daughter were sitting at the kitchen table and mom 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, mom 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 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.

Unfortunately while not wanting to rely on their children and wanting to leave their home as an inheritance to their children, seniors are doing without.  This isn’t what their kids want – they don’t want their parents doing without so they can have an inheritance.  Kids actually want their parents to have funds to remain independent.

Then we have the kids who are taking care of their parents by paying for groceries, meals when they go out, paying their bills, taking time from their busy schedules to clean their house, and helping meet their other needs.  This can have a negative impact on these kids’ finances.  Yet their parents don’t want to use the equity in their home and do a reverse mortgage now just so they can leave an inheritance for these kids.  In essence the kids are using their funds to take care of their parents now in exchange for an inheritance after their parents are gone.

Neither one of these scenarios make sense.  Why be insistent on leaving an inheritance to the kids while you’re doing without now?  Why depend on your kids and use their money to take care of you today so you can leave them an inheritance?  They want you to have your independence now and they aren’t looking for the inheritance when you need to funds now.  Actually the best inheritance you can leave your children would be to take care of yourself so they don’t have to worry about you.Celebrate with a reverse mortgage

Improve your cash flow during your retirement – sign your own Declaration of Independence with a reverse mortgage – then celebrate your independence.

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-3l

 

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 Closing Costs – High or Mythical?

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You’ve probably heard or read that reverse mortgage closing costs are high.  That’s a matter of perspective.  Have you looked at closing costs on a conventional home mortgage?  We’re going to compare these here to dispel this myth.

As with a conventional home mortgage (known as a “forward”), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan.

The third party and recording fees are standard for any loan.  However, with the reverse mortgage HUD regulates the fees and requires that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing fees.  Look at an estimated comparison based on a Minnesota home valued at $200,000:

THIRD PARTY FEES REVERSE FHA FORWARD FORWARD FHA
Appraisal $375 $300 $375
Credit Report $20 $20 $20
Flood Certification $16.50 $16.50 $16.50
Courier Fee* $25 $55 $25
Escrow, Settlement or Closing $250 $250 $250
Abstract or Title Search $150 $150 $150
Title Exam $135 $135 $135
Document Preparation Fee $100 $100 $100
Title Insurance $585 $585 $585
Endorsements — $100 $100
Recording Fees $92 $46 $92
County/Mortgage Registration Tax $256 $275 $275
Plat Drawing $60 $60 $60
Name Search $30 $30 $30
Special Assessment Search $30 $30 $30
TOTAL THIRD PARTY FEES $2,124.50 $2,152.50** $2,243.50

* Courier Fee is for sending a payoff on a current mortgage to the mortgage holder.

** These fees do not include all mark ups/processing fees so these may be higher when mark ups/processing fees are included.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  This is 2% of the home value for the reverse and 1 ½% for a forward.  The advantages with FHA insuring the reverse mortgage include:

  • Guaranteeing the funds are available for you.
  • Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4%) compared to other mortgages.
  • Providing a line of credit growth rate (available only with reverse mortgages).
  • Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

The origination fee is what the originating lender receives to cover the loan officer’s salary, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.

An estimate based on a $200,000 home value:

LENDER FEES REVERSE FHA FORWARD FORWARD FHA
Origination/Points $4,000 $2,000* $2,000*
MIP $4,000 $0 $3,000
Underwriting/Processing $0 $700 $700
SUBTOTAL LENDER FEES $8,000 $2,700 $5,700
Backend fee** $0 $2,000 $2,000
TOTAL LENDER FEES $8,000 $4,700 $7,700
Prepaid Interest*** N/A ++ ++

*Typical points on Forward loans are 0-4%; this example is based on $100,000 loan at 2% points
** Forward loans often have a 1% backend fee
*** Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate

TOTAL LOAN FEES REVERSE FHA FORWARD FORWARD FHA
$10,124.50 $6,852.50 $9,943.50

Note:  THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM! Refer to above comments on the benefits of FHA insuring the loan.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses.  (As of 2010 Appraisal Management Companies must be used to order and process the appraisal.  This fee is generally required to be paid for by borrower up front or “out of pocket.”)

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now, you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.  These together can equal or exceed the total of the closing costs on the reverse mortgage.

Whereas with the reverse mortgage you pay the closing costs upfront and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence.

In the big picture the cost of the reverse mortgage is less than a forward mortgage over time because the interest rate is lower on the reverse mortgage.  Therefore typically it doesn’t take too long for a forward mortgage to make up and then exceed what difference there is in closing costs of the reverse mortgage.

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-2N

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.

I want to stay in my home – Don’t tell me to sell!

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Often thought to be less expensive than a reverse mortgage, selling and moving is encouraged when one needs funds in retirement.  My question is, if you sell where are you going to live?  How long would those funds last?  While selling should be considered, you need to look at the all details before thinking that it is less expensive, easier and would give you more equity from your home.  Let’s look at the options.

Yes, if you sell you will have up front access to more of your equity than with a reverse mortgage.  Whereas you can’t access 100% of the equity at the time you are originating a loan.

Closing costs for selling include 6% for the agent as well as other closing costs.  On a $200,000 home sale the closing costs would be $13,400 to $14,400 depending on what the buyer would pay towards closing costs.  Not to mention the costs and hassle of the move.

Closing costs with the reverse mortgage include the same fees as any mortgage: origination fee, appraisal, title fees, title insurance, credit and flood searches and recording fees.  Because the reverse mortgage is insured by FHA there is also the FHA mortgage insurance premium (MIP).  Keep in mind if one is doing a forward FHA mortgage they too pay the MIP.  In Minnesota on a $200,000 home value closing costs would be approximately $10,400.  (More on reverse mortgage fees next week.)

So the costs for selling aren’t any cheaper than the reverse mortgage – in fact it would cost more to sell and move than the costs of the reverse mortgage.

When selling and moving into a rental property you need to consider how long the additional funds from the sale will pay the rent.  For example, if you own a home valued at $200,000 and you have a current mortgage for $100,000 that would be paid off leaving $86,600 in equity (after estimated $13,400 in closing costs).  If your rent is $1,500/month, that would be 58 months or just over 4 ½ years of rent NOT including utilities, or other living expenses.

If you don’t have a current mortgage, then $186,600 would be left after closing costs giving 10 years of rent payments at $1,500 per month. (Senior housing rents would more than likely be $3,000+/month shortening the length of time your funds would last for rent.)  Then when you don’t have more money for rent, where are you going to live?  Public Housing?

Let’s take a closer look at selling compared to a reverse mortgage:

  • As with a sale, the reverse mortgage would also pay off the current mortgage ($100,000 in this example).
  • When selling you receive all the funds in a lump sum.  With the reverse mortgage funds can be received in a lump sum, line of credit, monthly payments, or a combination of these.  Funds in a line of credit grow so more funds become available over time.  A growth factor is also built in if you choose to receive monthly payments.  Over time with the reverse mortgage you could be accessing more than the home value was at the time of origination versus just receiving the value when you sell.
    • Note:  Depending on qualifying factors (age, home value, & expected interest rate) with the reverse mortgage additional funds may be available after paying off a current mortgage.  Even if no additional funds are available after paying off a mortgage, cash flow would be improved with the reverse mortgage because there are no mortgage payments or rent payments.
    • Unless you are investing the funds from a sale and getting significant returns on your investment, the reverse mortgage provides more funds over time and offers more options.  Investments that are considered risky may not be a good option for seniors.
  • With the reverse mortgage you will have a roof over your head without a mortgage payment or rent payment and you can stay in your home until the 150th birthday of the youngest borrower – yes, that is until you are 150 years old − as long as the home is your primary residence, you pay your taxes, insurance, maintain the property, and don’t break the terms of the loan (same for any loan agreement).
    • If you consider the costs of property taxes, insurance and maintaining the property, cash flow is still more favorable with the reverse mortgage.  Total your annual property taxes and insurance then divide by 12 months.  Could you rent something for this amount?  For example, if your property taxes are $2,000/a year and your annual insurance premium is $800 for a total of $2,800 or $233.33 a month, add $100 a month for maintenance totaling $333.33 a month – where can you rent something for this amount?
  • In addition, the reverse mortgage is non-recourse which means there is no personal liability to you if the loan balance is higher than the fair market value at the time the loan is due.

Now let’s consider if you are selling and purchasing and moving to a new home.  With the sale you will be paying the closing costs in addition you may also pay some of the closing costs on the purchase.  Unless your current home has a lot more equity than the new home, you will need to obtain a new mortgage for the difference.  Would this really benefit you?

Selling and moving may benefit you if you are downsizing to a townhome or condo.  And if you do need a new mortgage for the difference of your sale price and the purchase price of the new home, a reverse mortgage home purchase program may be an option.  We’ll discuss this in a future article – if you want this info sooner contact us if you are in Minnesota or a reverse mortgage lender in your state.

If your home is larger than you can manage and has a lot of equity where you could purchase a new one without the need of a mortgage, then moving might be a good option for you to access funds.

The reverse mortgage is less expensive and, in most cases, makes more sense than selling and moving.  Now when you hear “consider selling over doing the reverse mortgage,” you can respond, “I don’t want to sell and move, the reverse mortgage is less expensive and gives me more options.”

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-2f

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.

Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In An Originator

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MN Reverse Mortgage Borrowers Working With Experienced OriginatorThere seems to be a fear that lenders who caused the downfall of the mortgage industry are entering the reverse mortgage industry and will be the next subprime product.  Legislators here in Minnesota and elsewhere and even the US Banking Regulator, John Dugan, has made statements to this account.  However, in reality those originators are few and far between in the reverse mortgage side of things.

Originating the reverse mortgage takes patience, kindness, a “social worker” attitude and a teacher aptitude versus a sales approach.  The subprime lenders don’t fit this profile.  They are looking for a quick and fast process to make money and move on to the next “deal.”

Because of this fear seniors and their families are afraid to consider a reverse mortgage that could really benefit them during their retirement years.  Addressing this issue, Atlanta’s NBC affiliate featured Joe Morris, President of Generation Mortgage, a leader in the reverse mortgage industry and a lender whom we at Reverse Mortgages SIDAC, are partners.  You can view the interview by clicking here:  http://www.11alive.com/news/local/story.aspx?storyid=131277.

While seniors and their families shouldn’t be afraid of the reverse mortgages and lenders shouldn’t have the high fear factor of the induction of subprime lenders into the reverse mortgage arena, there are some lenders that shouldn’t be originating reverse mortgages.  You can help protect against this.  To help ensure that you are working with an originator (also referred to as Loan Officer/Reverse Mortgage Specialist, Reverse Mortgage Advisor or Reverse Mortgage Consultant) who is experienced, knowledgeable and meets the industry’s standards, consider the following when talking with reverse mortgage lenders.  Yes, the list is long but knowing the answers to this list of questions will help protect you.

  • How much experience does the Reverse Mortgage Originator have with reverse mortgages (not just conventional mortgages as they are quite different)?
    • Work with experienced reverse mortgage lenders who specialize in reverse mortgages.  Ask how many years they have been originating and if/what training they have received.
  • How many reverse mortgage loans has the Reverse Mortgage Originator done?
    • Experienced loan officers have originated hundreds of loans.  Ask how many they have originated, not just their company or lender, but them personally.
  • Do the mortgage company and Reverse Mortgage Originator have the required federal and state licensing?
    • Mortgage Brokers/Originators have completed federal and state education, testing and licensing requirements. FDIC Banks and Credit Unions are registered but have not completed the education, testing and licensing requirements.
    • Ask your originator to provide documentation that they are licensed and/or look them up at http://mortgage.nationwidelicensingsystem.org under “Consumer Access” – if they are not listed they are not licensed to originate loans.
      • In Minnesota all individual mortgage loan officers (performing marketing, educating, originating functions) have to be licensed.
  • Who is the mortgage company’s lender sponsor?
    • Originating mortgage broker companies have to be sponsored by a Reverse Mortgage Lender who is FHA licensed.
  • Do they offer all reverse mortgage programs available for FHA’s HECM and when available, proprietary (private)?
    • Experienced originators should offer and be familiar with all the various programs available.
  • Do they assist you in determining which program is most suitable for your needs?
    • Experienced originators should discuss the various programs and help you to assess the program most suitable for your needs.
  • Do they just try to “sell” the program to you or do they help you determine if the program is appropriate for your situation?
    • An originator should not pressure you or sell you a particular program, they should discuss the various programs and have YOUR best interests at heart.
  • Will they meet with you face-to-face for an information session and the application?  Or do they just mail you the application package?
    • Because of the complexities of the program, originators should meet with you face-to-face to complete the application package.  These sessions normally take around 2 hours to review all the documentation and insure you understand what you are signing.  Don’t sign a package that is mailed to you – find an experienced local lender to work with you.
  • Do they disclose ALL information and identify ALL costs, explaining the program(s) and details and terms accurately and clearly so you understand them?
    • Originators should be willing to disclose and discuss all information regarding reverse mortgages in terms and a way so you understand them.  They should welcome your questions and be able to answer them to help ensure you have an understanding.
  • Do they know what costs are not allowed by FHA?
    • HUD regulates the fees and a mark-up of fees are not allowed – you should only be paying the actual cost of the service.  Your originator should know which fees are allowed by HUD and which aren’t.  They should fight for you if a title company is charging processing fees.  (Many charge processing fees without the lender or originator addressing it with their title company.)  The cost of the appraisal should be their actual charge – ask them what they charge, the settlement statement should reflect this actual amount.  (Proprietary products, when available, followed these same guidelines.)
  • Where are their loans processed?
    • Your loan should be processed in an office where they can provide a personal touch vs sending them across the country to a processing center.
  • How fast do they process their reverse mortgage loans?
    • Because the rates can change so quickly, processing (application to closing) should be able to be completed in 30 to 45 days under normal circumstances.  If additional documents are needed from you and you don’t provide them, the processing could take longer.
  • Who does the processing of the reverse mortgage loans?  Does the processor have experience processing reverse mortgages, not just conventional mortgages?  How much experience does the Reverse Mortgage Originator have with processing and solving the issues that arise during processing?
    • Because reverse mortgages are different than forward mortgages, the processor should have experience with reverse mortgages.  Loan Officers should also have an understanding of the processing and assist in solving any issues that arise during the processing – they should not just be focused on getting the sale and then moving on.
  • What type of customer service do they provide?  Do they have testimonials and/or references?
    • Experienced originators should pride themselves on their customer service and be able to provide testimonials and references – ask for them.
  • Will they (the Reverse Mortgage Originator) answer questions and continue to provide customer service once the loan is closed?
    • Originator’s customer service should include being available even after the loan is closed.  If they don’t have a lot of experience and/or they move from one lender to another you may not get your future questions answered.
  • Does the Reverse Mortgage Originator have the knowledge and experience on how the reverse mortgage and other Minnesota programs interact?  Programs such as Medical Assistance/Medicaid, Elder Waiver, home improvement loans from cities and counties.
    • Originators should be familiar with how the reverse mortgage interacts with other programs.  If they don’t find a different lender to originate your loan.  You may not need this now, but you may in the future.
  • Does the Reverse Mortgage Originator have the knowledge and experience with the requirements of the reverse mortgage if there is a power of attorney, guardian or conservator, a bankruptcy, Trust or Life Estate?
    • Originators should have knowledge of what the requirements are or you may start your loan but it may not make it through underwriting or be insured by HUD if your loan doesn’t meet their requirements.
  • Do they or the companies work with (mortgage company,  lender, underwriter, servicer, etc.) offer financial or insurance products in addition to the reverse mortgage?  Are they trying to cross-sell (selling more than one product) during the origination of your reverse mortgage?  Will you be contacted and offered other services such as financial or insurance products by them or the companies they work with after the loan is closed?
    • Cross-selling is not allowed.  Originators should only specialize in reverse mortgages and not sell or encourage you to purchase other products.  You are not required to purchase annuities, insurance or financial products with your reverse mortgage proceeds.
  • Are you treated with respect and dignity?
    • You, of course should be treated with respect and dignity.  If you feel you are not, find a different lender.
  • Do they protect your privacy and confidentiality and not distribute personal financial information to any third party without permission from you?
    • To protect against identity theft you want to be assured that your information is private and kept confidential.  Ask what their policies and procedures are.
  • Do they encourage you to discuss the loan transaction with family and/or trusted advisors?
    • Originators should encourage you and welcome talking with your family and/or trusted advisors about your decision to do the reverse mortgage.
  • When completing the application do they leave you copies of what you have signed and copies of the sample closing documents?
    • At the time of application or within three days, originators are required to leave you copies of what you signed including the calculations and Good Faith Estimate, two booklets, and samples of the closing documents.  If you do not receive these, request them, if you have problems receiving them, change to a different lender.
  • Do they provide a list of FHA counselors without steering you to a particular one?
    • HUD does not allow a lender to steer or be involved in your choosing or receiving counseling.

Be cautious that you do not complete an application or give the lender the counseling certificate until you have made your final decision of the lender you are choosing.  Once an originator or lender has the counseling certificate they can obtain a FHA number and lock you into using them when they might not be your choice of originator or lender.

Don’t be afraid of reverse mortgages or reverse mortgage lenders.  Reverse mortgages won’t be the next subprime product.  Be educated on reverse mortgages and work with an originator and lender who is experienced, knowledgeable, meets the industry’s requirements and fulfills the above list of expectations.

Updated 2011.

© 2009-2011 Beth Paterson, Beth’s Reverse Mortgage Blog,651-762-9648

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-1G

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.

AARP Has It Wrong About Reverse Mortgages!

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AARP often says a reverse mortgage should be a last result.  And while supporting a legislation bill regarding reverse mortgages introduced in Minnesota they sent out a message for their membership to contact Governor Pawlenty to sign the bill stating, “senior homeowners deserve to be protected from financial fraud that may lead to loss of equity or even foreclosure.”  They are using scare tactics and giving false information!

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 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).  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 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.

Let’s first talk about the statement “should be a last resort.”  A last resort to what?  You’re having a hard time paying bills; your retirement portfolio has been cut in half; you’re having to work longer or have to go back to work; there are some things you want to do but are short funds to fulfill those dreams or needs; home repairs are needed; and taxes are due; or your struggling to put food on the table.  Maybe you could use extra funds for emergencies or peace of mind.  You are lacking in security, independence, dignity and control during your retirement.

So when is the time to do a reverse mortgage?  You wait and don’t do a reverse mortgage because AARP and others have said “the reverse mortgage should be the last resort.”  Why are you struggling?  Why do you do this to yourself?  Why not have the peace of mind, security, independence, dignity and control that you deserve in retirement?

Doing the reverse mortgage now instead of later could be to your advantage.  Monthly payments can be received to supplement your retirement income.  Or cash flow can be improved if a current mortgage is being paid off because payments won’t need to be made.  And if you chose the line of credit option, more funds become available in the future with the growth rate.

If you do a “forward” loan (if you can even qualify now with the tighter qualifications) you have to pay closing costs and then you make payments.  What happens when “life happens” and now you can’t make payments – you can’t work, you’re trying to decide to pay medical bills or the mortgage payments.  You’re now in a crisis.

Then when you decide it’s time to tap that “last resort” you’ll be paying closing costs a second time.  And there is the possibility that now there won’t be enough funds from the reverse mortgage to pay off that loan.  Your financial problem has gotten even bigger.  And you may end up going into foreclosure.

So again I ask a last resort to what?  Doing the reverse mortgage sooner than later could relieve a lot of stress now and in the future.

Now let’s consider the message AARP sent regarding the Minnesota legislation.  Fortunately Governor Pawlenty vetoed the bill. Yes, senior homeowners (anyone for that matter) should be protected from fraud.  However this bill would not have protected seniors, it would have negatively impacted them and possibly eliminated the reverse mortgage option in Minnesota. (Read the details on this by visiting our website www.RMSIDAC.com and the What’s New page.)

With a reverse mortgage, like any mortgage, line of credit, or other loan using an asset as collateral, one is USING the equity, NOT LOSING it.  The difference with the reverse mortgage is one doesn’t have to make payments during the term of the loan but pays it off when they move, die, or sell.  And because it’s non-recourse there is added protection over the other types of loans.

I’m not sure how the reverse mortgage could lead to foreclosure.  With the reverse mortgage one doesn’t have to make payments so that risk of foreclosure is removed.  There are risks of losing the home even without the reverse mortgage: If you don’t pay taxes, the county can foreclose; if you don’t have insurance, and there is damage to the home you could be without your home.

The reverse mortgage actually often helps seniors keep their home FROM FORECLOSURE.  Because income and credit are not considered to qualify, the reverse mortgage can be done to pay off the current mortgage, eliminate mortgage payments and save the home from foreclosure.

If AARP really cares about seniors they will stop using scare tactics and giving false information.  They will get the facts by becoming educated and then help seniors by providing accurate information.

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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-9

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.

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