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

Posted on April 23, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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-yv

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 Hope and Opportunity With Reverse Mortgages

Posted on April 8, 2012 by Beth Paterson, CRMP

It’s the season of hope and new growth and opportunity. Flowers are blooming, trees are budding, the grass is growing. As with the season, seniors can find this hope, new growth and have new opportunities that they can remain in their home with security, independence, dignity and control. And like the many types of flowers, buds and new growth, the variety of how the reverse mortgage funds are used and numerous, basically endless. Here are some of the ways seniors have found hope and opportunity with their reverse mortgage.

Stay in one’s home where they may have raised their family, are familiar with the neighborhood and their neighbors and where they usually want to remain.
Pay off a current mortgage to eliminate the monthly mortgage payments.
Save one’s home when faced with foreclosure or tax forfeiture.
Have improved cash flow with no monthly mortgage payments.
Have funds for making home improvements or home modifications.
Retire and not feeling like you have to work just to have money to pay the bills.
Have cash flow to be able to pay taxes.
Have funds to pay for home health care.
Have funds for some assistance with home care or companion services.
Have funds for adult day services.
Have funds for medical expenses and prescriptions.
Afford going to the dentist.
Afford new eye glasses.
Have funds for the needed hearing aid.
Have funds to cover long term care expenses.
Cover everyday living expenses.
Not rely on credit cards.
Not rely on children.
Have funds for the little extras in life, like:
- getting one’s hair done,
- having cable TV,
- buying groceries,
- going to lunch with friends,
- treating their children to dinner,
- going to community plays or the theater or a concert,
- taking the grandchildren to the zoo or a movie,
- Depends (I had a client say with their reverse mortgage they could now afford to buy Depends),
- being able to do hobbies.

Purchase a more dependable car
Afford transportation if one can no longer drive.
Afford the travel for the family wedding or reunion.
Take the vacation they have dreamed of all their life.
Protect some of their other retirement funds or investments where there might be taxes or penalties on withdrawals.
Purchase a new home to downsize and/or move closer to family
Have funds for emergencies.
Reduce financial stress.
Have funds to full fill needs and goals.
To live with security, independence, dignity and control.

It’s fulfilling to me to be able to help seniors find hope, growth, and opportunity with reverse mortgage (visit the links below for some stories). A reverse mortgage has given hope and opportunity to thousands of Minnesota seniors so they can remain in their home with security, independence, dignity and control even during trying times. If you know a senior who is looking for hope and opportunity, a reverse mortgage may be their answer.

To determine if a reverse mortgage is right for one’s situation, talk with an experienced licensed reverse mortgage expert to get the facts. Learn some of the facts at our website: www.RMSIDAC.com. “What to Consider When Talking With Reverse Mortgage Lenders” will help you determine questions to ask when choosing your originator.

Related articles of stories on how seniors have used the reverse mortgage and how it’s made a difference in their lives:

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

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

Reverse Mortgages Receive Some Good PR Coverage

Posted on March 24, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

Posted on March 1, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Are People So Resistant to Reverse Mortgages?

Posted on February 17, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on January 19, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

Where The Heart Is: Using Technology To Remain At Home

Posted on January 9, 2012 by Beth Paterson, CRMP

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

Where The Heart Is: Using Technology To Remain At Home

You have the opportunity to listen and view the webinar.

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

In this webinar you will learn:

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

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

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

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

Giving Thanks Because of Our Reverse Mortgage Customers

Posted on November 23, 2011 by Beth Paterson, CRMP

My reverse mortgage borrowers often call to say “Thank you!” for helping them obtain their reverse mortgage. They proceed to tell me what a difference it has made in their lives as well as for their families. I always appreciate hearing from them as well as hearing their stories.

I also receive comments and notes of appreciation from others who work with seniors, my referral sources, the vendors who we need to do a reverse mortgage and operate our business, and those in my networks.

For me it goes beyond receiving the thank you’s from others. I too have to say “Thank you!” Thank you to my reverse mortgage borrowers and all I work with for the opportunity I have to serve. I am rewarded to be able to assist in making a difference in the lives of seniors. I recognize that it is because of you I have this opportunity to serve and I feel blessed to be able to do so.

Many years ago I found the following poem on a restaurant place mat. I don’t know who wrote it but I did copy it down and have it hanging on my office wall… a wonderful reminder.

Because the Customer

Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!

Thank you to my reverse mortgage borrowers, my referral sources, my vendors, my networks and all who help make a difference in the lives of seniors. It is because of YOU I exist and am so rewarded.

May you find reasons to give thanks for the blessings in your lives this Thanksgiving day and every day.

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.

Are you afraid to do a reverse mortgage? Twelve Reasons You Shouldn’t Be.

Posted on October 30, 2011 by Beth Paterson, CRMP

Does what you’ve heard about reverse mortgages make you afraid of them? Has your fear kept you from getting the facts to see if one might benefit you?

A reverse mortgage is a mortgage with special terms for seniors 62 and older. The most popular, and only one available in Minnesota, a Home Equity Conversion Mortgage or HECM, is insured by HUD. Let’s look at twelve reasons you shouldn’t be afraid of reverse mortgages.

Reverse mortgages are highly protected – One of the protections includes that borrowers receive counseling from a HUD trained and approved third-party counselor. Others include prohibiting cross-selling, disclosures and implementing requirements that limit scams and fraud.
No monthly payments required – Your cash flow improves because you don’t have to make a monthly mortgage payment. Instead of making monthly mortgage payments, the reverse mortgage is due when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower. And with no monthly mortgage payments required, the risk of foreclosure is reduced.
A variety of program options are available – The HECM Standard, HECM Saver and Home Purchase Programs are available with a fixed rate and adjustable rate options. This gives you options to find one that is right for your situation.
The interest rate is not determined by your income and credit score – The interest rate is based on the program chosen, no matter what one’s income or credit score is. With a conventional mortgage, one’s credit score, income and assets will impact the interest rate of their loan – with a fixed income the interest rate is likely to be higher if one even qualifies for a conventional mortgage.
Funds are guaranteed to be available during the term of the loan – As long as one abides by the terms of the loan, the funds are guaranteed to be available. Borrowers are responsible to pay property taxes, insurance and maintain the home and if applicable pay home owner association fees.
Flexibility on how funds are received – Funds are available to borrowers in a line of credit (has a growth rate), monthly payments (structured to your needs), lump sum or a combination of these.
No limitations on how the funds can be used – One can use the funds received from the reverse mortgage however they choose – there are no restrictions. The reverse mortgage is like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.
The title stays in your name – the bank does NOT own your home, you continue to own the home.
Closing costs are comparable to conventional loans – as with any mortgage there are closing costs. While often said to be expensive, actually the reverse mortgage closing costs compare to those of a conventional loan.
Fees charged are regulated by HUD – HUD only allows the necessary fees which are standard and customary – no mark up and “junk” fees are allowed.
Reverse mortgages are non-recourse – This means if the loan balance is higher than what the home can be sold for, the borrower or their estate does not have to come up with the difference. If the home is sold for more than the loan balance, the difference goes to the borrower or their heirs.
Social Security and Medicare are not Impacted – One can still receive Social Security and Medicare with a reverse mortgage. Medicaid may also be received under ceratin circumstances. The reverse mortgage is a loan and the proceeds are not considered income.

Face your fear and get the facts about reverse mortgages and see if one may be right for your situation. You may find that a reverse mortgage could make your life easier and provide you cash for your needs and desires.

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.

Evaluating HECM Reverse Mortgage Payment Plan Options

Posted on October 23, 2011 by Beth Paterson, CRMP

A Home Equity Conversion Mortgage or HECM, also known as a reverse mortgage, is a mortgage which allows seniors 62 and over to convert the equity of there home into cash. Unlike a conventional mortgage, with the HUD insured HECM there are no monthly mortgage payments required. Instead the borrowers have options on how they want to receive the cash “paid” to them: a lump sum, monthly payments, a line of credit, or a combination of these. It shouldn’t be looked at as “one size fits all.” One needs to evaluate the different options to decide which is best for their situation. Let’s review them here.

A Lump Sum – A lump sum is pulling an amount of funds at the time of closing. A lump sum can be done with both the adjustable rate program and the fixed rate program. The adjustable rate program offers more flexibility because one can choose the amount they want at the time of closing with the remainder received in monthly payments or a line of credit. The fixed rate program requires borrowers pull out all of the funds in a lump sum at the time of closing.

Considerations that need to be taken into account with the lump sum:

Pulling all funds at closing is ideal if one has a use for all the funds. For example used to pay off a current mortgage or other debt or to purchase a new home without the requirement of monthly mortgage payments.
If one doesn’t have a use for all the funds, what will be done with funds not used? A savings account and CDs are not paying much interest so that is generally not wise to pull all funds and place in savings accounts or CDs.
The interest starts accruing on the loan balance when the funds are drawn so in the case of a lump sum, the interest is added on the amount drawn up front. If one doesn’t have a use for the funds and they are put in a savings account, the interest accrued will likely be higher than what is earned as interest on funds in a savings account.
Pulling all the funds in a lump sum could impact one who is on or going on Medicaid (Medical Assistance in MN) or other public benefits. Funds from the reverse mortgage are not considered income because it is a loan against the property, so they are not considered an asset for Medicaid qualifications. However if one pulls funds from the reverse mortgage and place them in their checking account, savings account, a CD or other investments, they could then be considered an asset and impact qualifying for Medicaid and other public benefits.

Minnesota law allows for reverse mortgage borrowers to pull funds and spend them in the month they were received and not impact their Medical Assistance and other public benefits. Check with your state’s laws to see what is allowed where you live.

For example I had a borrower who was on Medical Assistance (MA), doing the reverse mortgage to be able to remain in her home with home care. For her convenience the family was having a bathroom installed on the main floor. At the time of closing they pulled $10,000 for the bathroom installation. Because it was spent within the month, she remained on MA. However if they had only spent $5,000 of the lump sum draw, she may have lost her MA benefit because the additional $5,000 would have put her over the allowable $3,000 in assets. (Check with an elder law attorney to see what is allowable in your state.)

With their fixed income Paul and Mary were struggling making their mortgage payments on their conventional mortgage. They did a fixed rate payment plan HECM using all the funds available from the reverse mortgage to pay off their conventional mortgage. Without having monthly mortgage payments their cash flow improved: the $1,200 monthly mortgage payment they had been making on their conventional mortgage was now available to meet their other needs.

Jim and Paula used the fixed rate reverse mortgage to purchase a new home closer to their children.

I emphasize that choosing to pull the funds out in a lump sum should only be done if you have a use for all or the majority of the funds at the time of the draw.

Monthly Payment Option – The amount of money one could receive as a monthly payment. The borrower can receive tenure (for “life”/as long as the home is your primary residence) payments or determine the amount they wish to receive each month. For example, a term payment can be received for a certain period of time, i.e. 10 years. Or a fixed amount each month, i.e. $100 each month or $800 each month. This option is only available with the adjustable rate program.

Considerations for receiving monthly payments:

It’s a great option to add extra cash each month in an amount that fits one’s needs if they need a regular amount each month.
Offers control so one pulls out what one needs each month.
The loan balance won’t grow as quickly as with a full lump sum draw. Interest only accrues on the amount pulled at which time it becomes part of the loan balance.
If one has not accessed all the funds via monthly payments they are not part of the loan balance to be repaid.
One can receive Medicaid and other public benefits while receiving funds in monthly increments.
If one is not spending the funds each month and one is leaving them or a portion of them in their checking account, their checking account balance could accumulate so that they have an asset more than what is allowable for Medicaid or other public benefits.

Margaret was receiving home care and needed additional funds to cover the private pay charges. A reverse mortgage was set up for the amount she needed each month.

With his reverse mortgage, Gene chose the monthly payment option to meet his need of an additional $200 a month to supplement his Social Security payments.

A line of credit – A credit amount from which the borrower can receive funds at any time and in any amount of their choosing. With the reverse mortgage the amount of the line of credit cannot exceed the Principal Limit. This option is only available with the adjustable rate program.

Considerations for the line of credit payment option:

One chooses when they want to draw funds and in the amount they need or want.
Offers flexibility and control over your cash flow.
The loan balance won’t grow as quickly as with a full lump sum draw. The loan balance is increased at the time the borrower accesses funds in the line of credit.
If one has not accessed the funds in the line of credit they are not part of the loan balance to be repaid.
One can receive Medicaid and other public benefits with the line of credit option – as long as the funds pulled are spent in the month they are received (check with your state).
Money in the line of credit can grow, so more money could be available to the borrower in the future. Often confused as an interest rate, it is actually a growth rate. Growth rate means more funds are available for use at a future date. If one has not accessed the money in the line of credit it is not their money so interest is not earned.

Connie did a reverse mortgage so she would have funds available in a line of credit for emergency needs.

After paying off a conventional mortgage for Bob, he left the balance in a line of credit. A year later he pulled some funds and took a dream vacation to Yellowstone with his nephew. He also pulled funds at a later date to modify his home so it would accommodate a wheel chair when the time came.

A combination of payment plans – An option to pull funds as a lump sum at closing, leave some funds in a line of credit and receive monthly payments; pull funds as a lump sum to meed an immediate need then leave the balance in a line or credit or set up as monthly payments; or leave some funds in a line of credit as well as receive monthly payments. This option is only available with the adjustable rate program.

Considerations for the combination payment plan:

Offers flexibility to meet one’s needs.
Review considerations for each option outlined above.

When Jerry and Delores did their reverse mortgage a conventional mortgage was paid off, they pulled $3,000 out in a lump sum for some immediate needs, set up a payment plan of $300 a month and left the rest in a line of credit. This fit their needs to improve their cash flow.

Dorothy needed hearing aides. She did her reverse mortgage, using a lump sum draw to purchase her hearing aides then leaving the balance in her line of credit for her future needs.

Note that with the adjustable rate program one can change the payment plan during the term of the loan. For example, after having a mortgage of $50,000 paid off at closing, and initially one pulls $1,000 at the time of close but leaves the balance in the line of credit, after 3 years one can have the payment plan restructured to receive a monthly payment amount. There is a one-time fee of $20 for the payment plan change.

Three years after Jerry and Delores did their reverse mortgage they no longer needed the monthly payments so they contacted the servicer of their reverse mortgage and stopped the monthly payment, leaving all the funds in the line of credit.

These same payment plan options are available for both the HECM Standard and the HECM Saver.

The reverse mortgage is beneficial to seniors if the right payment plan is chosen. As outlined, there are advantages and disadvantages for each of the options. Review these considerations and work with your reverse mortgage expert to help you decide which option is right for your situation.

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

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

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Because the customer has a need,
we have a job to do.

Because the customer has a choice,
we must be the better choice.

Because the customer has sensibilities,
we must be considerate.

Because the customer has urgency,
we must be quick.

Because the customer is unique,
we must be flexible

Because the customer has high expectations,
we must excel.

Because the customer has influence,
we have the hope of more customers.

Because of the customer,
we exist!