A Reverse Mortgage Or…? Other Options To Consider

Posted on September 6, 2010 by Beth Paterson, CRMP

Seniors need money for a variety of reasons including home repairs or modifications, medical expenses, home care, long term care, taxes, insurance, cash for emergencies, covering mortgage payments, a reliable car, everyday living expenses and even just maintaining their lifestyle. There are always options to consider and they should be reviewed when making important decisions especially when they are big decisions such as doing a reverse mortgage.

Before looking at some of the other options let’s define a reverse mortgage. The most common reverse mortgage is the FHA insured Home Equity Conversion Mortgage or HECM offered through HUD. A jumbo or proprietary/private reverse mortgage may be available in some states (not available in Minnesota). A mortgage like a conventional mortgage, a reverse mortgage is a loan against one’s home using the equity now with the home as collateral, however, the reverse mortgage has special terms for those 62 and older. The amount loaned is based on the age of the borrower, the home value and an expected rate rather than on one’s credit score and income. The older one is the more funds they can receive. Just like a conventional mortgage, the homeowner remains on title – the bank does not own the home.

Proceeds from the reverse mortgage can be taken as monthly payments, line of credit, lump sum or a combination of these. Monthly mortgage payments aren’t required but the loan is due and payable when the home is no longer one’s primary residence. In the case of a joint tenants as long as one is still in the home as their primary residence the loan is not due until both have left the home as their primary residence. The due date on the mortgage is the 150th birth date of the youngest borrower.

Another benefit of the reverse mortgage is the fact that it is a non-recourse loan which means there is no personal liability to the borrower or their heirs as long as they are not retaining ownership. In other words if the loan balance due on one’s home is $250,000 but the home can only be sold for $200,000 the borrowers or their heirs are not required to come up with the difference of the $50,000 as long as they are selling the home and not keeping it in the family. The opposite also is also a benefit, if the home is sold for more than the loan balance, the borrower or the heirs receive the difference.

Social Security and Medicare are not affected and one can still receive Medicaid or Minnesota’s Medical Assistance as long as the loan proceeds are structured properly. Because the funds are considered loan proceeds, not income, generally the IRS does not consider the reverse mortgage proceeds as income for tax purposes. Additionally reverse mortgages are more highly protected than any other financial option available.

Now let’s look at some other options.

State and Community programs for special purposes such as home repairs. There may be some options for low or no interest loans or grants to help seniors or those with low-income have funds for home repairs. These are often forgiven if you are in the home for a period of time such as 10 years. This can be a great option if one only needs funds for repairs such as a new roof or repair a bathroom. Unfortunately the funds for these programs are not as readily available. Additionally we have found that seniors often have more needs than just home repairs such as they have credit card debt or their Social Security just isn’t enough for meeting their living expenses.
Property tax deferrals. If a senior is having difficulty paying their taxes they may qualify for a property tax deferral. This is a program that allows property taxes to be deferred or delayed until one sells their home. This can be a great option if paying taxes is the only issue. Again, seniors often have a need for more cash than just covering their taxes.
Liquidation of stocks, bonds, 401Ks, and/or other investments. If one has other investments this may be an option which would have no outside approval needed and possible minimal costs to access the funds although there may be penalties and/or tax consequences. Things to consider is there enough funds to meet the needs of cash? And is it better to keep those investments until when the value increases (opportunity costs). When liquidating other investments one may lose the additional financial security.
Sale of other assets, for example lake home, RV, boat, real estate property. This may provide extra cash although it may be difficult or time consuming to sell and may not provide enough funds for their needs. Additionally it may reduce one’s quality of life.
Loans from relatives. Loans from relatives can be an easy transaction to complete, cost effective, i.e. no or low interest and possibly no or low payments. Is there a relative who will loan the money? Will the loan be enough to meet one’s needs? What happens if the relative’s life changes, i.e. they have medical issues or lose their job and they need money for their own needs – will they require the senior repay the loan and how will this be done? How will this impact the senior at this point? What will it do to family relationships?
Relative becomes “bank” and provides loan using home as equity. As noted above, it could be an easy transaction, credit and income may not be considered, and it could be cost effective with a lower interest and low payments. The above questions and concerns should also be considered when doing this type of transaction. When doing this type of arrangement I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do.
Sell home to relative or investor and lease or rent back. This can have the same advantages as I noted above. As pointed out above, I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do. And again the same concerns that I pointed out above should be considered before entering this type of arrangement. If it is a lease back/rental situation what happens when the senior can’t make the payments? Will they be forced to leave their home? If the relative is doing the loan and their situation changes they may not be able pay the mortgage on the home they may need to sell the home or they could face foreclosure. This will be a difficult situation for all parties involved and hurt the family relationships. If the investor’s plans or goals change they may decide to or need to sell and then what happens to the senior?
Selling, moving and renting. This could provide one with access to all equity in the home with no restrictions on the use of the funds. If one is in a home too large to manage or it is no longer safe for them to be in the home and they can’t afford the home care, this may be the best option. Things to consider are the costs of selling, how disruptive will the selling and move be since seniors want to stay in their home with familiar surroundings. Where are they going to live and will the funds be enough to cover the living expenses now and in the future especially if they are renting. Will their quality of life be reduced if they want to stay in their neighborhood. Selling and receiving all funds in a lump sum could affect receiving government benefits such as Medical Assistance.
Moving in with children or other relatives. Selling and moving in with children or other relatives could provide extra cash as well as support or care by their loved ones. Things to consider would be if the children have space for their parent(s) to move in with them. Do the children have time to provide the extra care? Can they afford to give the extra support to their parents? What will it do to the family relationships? Seniors don’t want to rely on their children so how will this impact the senior?
Home sharing. Remember the TV show “The Golden Girls”? Setting up a home sharing situation could be an advantage to increase cash flow as it would reduce expenses by sharing costs. Another advantage could be having someone else around. If the senior is selling and moving in with someone else consider the costs of selling and moving, the disruption to their lifestyle, and living with someone else. If they are the one renting will they have enough funds to cover living expenses in the future. And how will it impact the receipt of government benefits?
Line of credit or Home Equity Line of Credit (HELOC). A line of credit at a bank will allow one to borrower only what is needed and the initial loan costs may be low. They will be able to access the cash as the needed it. At this time it may be difficult to qualify because of their fixed income and/or credit. They may not qualify for enough funds to meet their needs and even if they have what they need now, will they need an additional loan for future needs? If they do qualify for a bank line of credit they will have to make payments and defeat the purpose of improved cash flow. And if life changes they may not be able to make the payments.
Home Equity loan. This may be an option if one can qualify… to qualify one needs to meet the requirements of income, credit and ability to repay the loan which also determine the interest rate. One may borrow only what is needed, i.e. $30,000 and the loan origination fee is based on the actual amount of the loan. Historically the interest rate is higher than with a reverse mortgage. Being payments are required if life changes, one may not be able to make the payments and then may face foreclosure.

The reverse mortgage may be a bigger benefit to a senior than these options but before one makes the final decision, the negatives of the reverse mortgage should also be reviewed. Generally the negative is there will be less funds available for heirs or when the loan is being repaid because the loan balance is increasing as one is using the funds during the life of the loan and not making payments.

Another negative is the interest is not a deduction until it is paid generally at the time the loan is being paid off. Although payments can be made on the reverse mortgage and once the FHA Mortgage Insurance Premium is paid payments can be applied to the interest to receive a tax deduction on interest paid.

Closing costs are often perceived as high although they are comparable to a conventional mortgage. An explanation of the costs can be found at “Do You Understand The Reverse Mortgage Closing Costs?” and a comparison of the costs are at “Reverse Mortgage Closing Costs – High or Mythical?”

Does the reverse mortgage have more pros over the other options? Reverse mortgage borrowers who have evaluated their options feel the positives outweigh the negatives because they want to remain in their home, live comfortably, have some “elbow room,” and be independent with financial peace of mind without being burden on their children. Usually the children are doing fine on their own and want their parents to eliminate their financial worries and enjoy their life more fully.

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-nC

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.

Can’t Afford To Retire? Maybe There’s An Answer!

Posted on August 16, 2010 by Beth Paterson, CRMP

With mortgage payments due, retirement funds decreased or decreasing it is harder for seniors to retire. However, there may be the option to retirement.

Working a 40 hour week at a very physically demanding job, Len continued to work in order to cover their mortgage payments. After hearing about a reverse mortgage, they contacted me, got educated with the facts and decided to proceed. Once their reverse mortgage was closed and their conventional mortgage paid off, eliminating mortgage payments Len was able to retire. With no mortgage payments, he and his wife, Maricarol are now enjoying their retirement, living in their Minnesota retirement home close to their children giving them the opportunity to spend more time with their children and grandchildren. They said, “Without the reverse mortgage Len would not have been able to retire.”

Trying to make ends meet and make his mortgage payments, Jack is still working. Having completed his Home Equity Conversion Mortgage (HECM) application, he is anxious to get to the date of his closing so his mortgage will be paid off with the reverse mortgage and his cash flow improved.

A mortgage with special terms for seniors, a reverse mortgage allows those 62 and over to keep the title, remain in their home with no income or credit score qualifications, no monthly mortgage payments, and a due date when the home is no longer their primary residence or their 150th birthday. (A jumbo reverse mortgage does have a credit score qualification, however.) Considered a lien against the property the IRS generally does not consider the reverse mortgage loan advances to be taxable income.

Offering more flexibility, the reverse mortgage proceeds can be received in monthly payments (for life or structured to borrowers needs), line of credit (with a growth rate), lump sum or a combination of these.

The loan amount is determined by the home value, age of the borrower (the older one is the more they can access), interest rate and program chosen. The fixed rate option requires all proceeds to be drawn as a lump sum, the adjustable rate allows the flexibility of the funds to be received in monthly payments or a line of credit. One’s circumstances will help decide which program is best for their situation.

At 79, Mike was still working to supplement his Social Security income. Then he injured his knee and couldn’t work any more. Without his work income he couldn’t afford to cover his living expense, which included a $700 mortgage payment, let alone his additional medical expenses.

Mike did a reverse mortgage and with his proceeds, his conventional loan was paid off as well as some other bills. He now has a better cash flow because he doesn’t have to make any mortgage payments. And having chosen the monthly payment option, and he is receiving monthly payments to replace his working salary.

He’s very relieved that he doesn’t have to worry about where the money is going to come from to make his mortgage payment or maintain his lifestyle. Even with his knee healed he doesn’t have the need to work and he doesn’t have to worry about losing his home if he couldn’t make a mortgage payment. He now has security, independence, dignity, and control during his retirement.

If you know someone 62 and older thinking they can’t afford to retire, have them explore a reverse mortgage. Being educated with the facts the reverse mortgage may well be their answer to retiring.

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.

Who Should You Believe About Reverse Mortgages?

Posted on July 31, 2010 by Beth Paterson, CRMP

With the media publishing articles about reverse mortgages by so called reporters and comments by professionals (financial, CPA, attorney), legislators, and the general public, everyone has an opinion about reverse mortgages. The many articles that have surfaced about reverse mortgages including in MSNBC, Time Magazine, Parade Magazine, Consumer Reports, and the National Consumer Law Center Report all provide information trying to give the impression the reporters have done their research.

Unfortunately these so called reporters have NOT done their research and their articles are NOT based on facts of reverse mortgages. They don’t have documentation supporting their statements. If they had done their research and had the documentation to support their statements the articles would read much differently. Consequently the articles misrepresent reverse mortgages and are painting negative images based on the so called reporters’ biased opinions which spread the misconceptions and misunderstandings of reverse mortgages.

Even the articles that outline the facts have comments that reflect ignorance of reverse mortgages. And the sad point is that people are believing these sources who don’t have the facts or take the time to get the facts.

Think about it. Would you go to a plumber for health issues? Of course not! You go to a doctor. And don’t you go to a specialist for the area of your concern, i.e. a heart specialist for heart disease? So why go to the media, professionals, legislators or others instead of going to a reverse mortgage specialist for the facts on reverse mortgages?

Let me share 15 facts about reveres mortgages that are often misunderstood:

A reverse mortgage is a mortgage just like any home equity loan where one uses the equity of the home but it has special terms for seniors 62 and older.
The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title and are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
There are no income or credit score requirements to qualify for the FHA Home Equity Conversion Mortgage (HECM). (Some proprietary jumbo reverse mortgages may have credit qualifications.)
No monthly mortgage payments are required.
There is no limitation on how the funds can be used.
Offers more options – Funds can be received in monthly payments structured for life or as needed, line of credit (with a growth rate), lump sum, or a combination of these.
Social Security and Medicare are not affected because it is a loan, not considered income.
Medicaid (Medical Assistance (MA) in Minnesota) and other government benefits can still be received with the reverse mortgage.
Borrowers can stay in the home as long as it is their primary residence or in the case of a couple as long as one borrower is still in the home as their primary residence. The due date on the mortgage is the youngest borrower’s 150th birthday.
At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference. The lender or bank does NOT keep the difference!
The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership. So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is be sold for as long as they are not retaining ownership. Borrowers are not leaving a debt to their children.
As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid. (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.)
Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees. Even though many times they are considered expensive or high they compare to conventional loans, in fact the difference comes down to the FHA Mortgage Insurance Premium. You can see a comparison of the costs in my article, “Reverse Mortgage Costs – High or Mythical?” and “Do You Understand The Reverse Mortgage Closing Costs?”
FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available. The advantages include:
- Guaranteeing the funds are available for you.
- Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 3% on the adjustable rate; 5.56% on the fixed) 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 HECM borrowers are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected!”

These facts are all supported in the documents signed at application and at closing including the Important Terms and the Loan Agreement. With the reverse mortgage the sample closing documents are required to be provided to borrowers at the time of application so they have the opportunity to review, have their family and/or attorney review the documents before signing. If they read them they will have the facts as outlined above.

One would think it is a simple answer to the question, “Who Should You Believe About Reverse Mortgages?” However seeing the many articles along with the comments it appears people believe the wrong source. So are you going to believe the media and non reverse mortgage professionals about reverse mortgages? I encourage you to get the facts from a reverse mortgage specialist just as you get your health facts from the health care specialist. Then decide if it is right for your situation.

This material my be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-n4

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.

Should One Refinance Their Reverse Mortgage?

Posted on July 18, 2010 by Beth Paterson, CRMP

Current reverse mortgage borrowers are receiving letters encouraging them to refinance. Even their monthly statements are encouraging them to look at refinancing. While refinancing a reverse mortgage is an option, let’s explore whether it should be considered.

Just like refinancing a conventional, or what we call a forward, mortgage borrowers consider refinancing a reverse mortgage when they need more money. But just like a forward mortgage, one needs to make sure they are going to receive a benefit when they refinance. And just like a forward mortgage, when refinancing the closing costs are part of the transaction.

When I receive the calls from my borrowers who have received the letters or encouragement on their statements I start with these questions:

How long ago did you take out your reverse mortgage?
What was the value of your home at that time?
What is the value of your home now?
What is your current loan balance on your reverse mortgage?
Are you receiving monthly payments?
Do you have funds in a Line of Credit?

These questions are pertinent in helping one decide if it makes sense to consider refinancing.

Keep in mind the factors used to determine the amount a senior can receive from their reverse mortgage include: the interest rate of the program chosen, the age of the borrower (the older one is the more funds one can receive), and the home value based on an FHA appraisal or the FHA Lending Limit.

The first three questions are important in determining if they will be able receive more money when refinancing. As one aged during the time home vales were increasing refinancing made more sense because borrowers were more likely to be able to receive additional funds.

Now generally one’s home value has decreased so we find that the they will not receive additional funds from refinancing their reverse mortgage. If, however, the initial reverse mortgage was taken when there was a lower lending limit, i.e. $251,750 and their current home value is, say $400,000, then refinancing may be considered.

For many years the FHA Lending Limit was based on the county in which one lived. In 2008 the Lending Limit was changed to a national limit of $417,000. For 2009 and 2010 the national limit has been increased to $625,500. Because the limit will be going down to the $417,000 January 1, 2011 there is a push with marketing letters and statements encouraging borrowers to take advantage of the higher lending limit. Is refinancing a good idea here? Not necessarily, especially if one’s home value isn’t in the higher valued range.

The current loan balance is important because when refinancing the reverse mortgage, the current reverse mortgage needs to be repaid. If there aren’t enough proceeds to pay off the current mortgage and to receive additional money then refinancing doesn’t make sense.

The final two questions, whether they are receiving monthly payments or have funds in a line of credit, are important because it doesn’t make sense to refinance a reverse mortgage if they still have funds available to them.

With a forward mortgage sometimes refinancing is done to reduce the interest rate. With the reverse mortgage it doesn’t make sense to refinance for the interest rate. Remember one isn’t making payments with a reverse mortgage so the interest rate doesn’t impact their monthly cash flow, it only impacts the amount that will be repaid when the loan becomes due and payable.

It is important to note that the reverse mortgage is non-recourse which means there is no personal liability to the borrower if the loan balance is higher than what the home can be sold for as long as the borrower or their heirs are not retaining ownership.

Until 2008 all reverse mortgages were adjustable rate mortgages. Now, don’t panic, this isn’t a bad thing with a reverse mortgage. Additionally, the interest rates are remaining low, certainly under 4% and likely under 2% or 3%. The interest rate is made up of an index and a margin and the current margin is higher than the earlier years meaning that the current interest rates will be slightly higher than what borrowers currently have on their reverse mortgage.

In 2008 a fixed rate was introduced. Even though the current fixed rate is a little lower than when it was initially introduced one is not going to gain a benefit of more funds available by refinancing for a lower interest rate – enough time hasn’t passed to offset the costs of refinancing.

Even if the interest rate increases or is higher than what is available now, costs of refinancing will not offset the lower interest rate. Consequently at this time it doesn’t make sense to refinance for a lower interest rate.

The Streamline Refinance of the FHA Housing and Urban Development (HUD) Home Equity Conversion Mortgage or HECM reverse mortgage requires a calculation demonstrating borrowers receive at least 5% more or they must go through the counseling session to review their situation. Some lenders require the counseling for any borrower refinancing their reverse mortgage. This is a strong protection to help borrowers from falling for a lender’s marketing letters and thinking refinancing may be a good idea when it really isn’t. Unfortunately it can cost seniors to find out this information as counselors are allowed to charge up to $125 for the counseling session.

While options should always be considered, after reviewing the above questions and their answers at this time refinancing generally doesn’t make sense for reverse mortgage borrowers. Hopefully seniors don’t get sucked in with marketing letters & statements by completing an application so that the lender can just take an application when refinancing doesn’t make sense for them.

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-mT

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.

My Reverse Mortgage Funds Are Used… Now What?

Posted on July 11, 2010 by Beth Paterson, CRMP

A question on a recent post was “What happens when a borrower uses all the funds or out lives the money? This happened to a woman and then she had to pay rent she didn’t have.”

The first part of the question is common and shows the continued need to clarify the many misconceptions and lack of understanding of reverse mortgages. The second part of the question demonstrates confusion on whether the loan this woman had is a reverse mortgage and/or the misuse of the term “rent.”

A reverse mortgage is a loan, like any other conventional loan or home equity loan, using the equity in one’s home but has special terms for seniors 62 and older. The amount of the loan is determined by the age of the borrower, the home value or FHA lending limit, the Expected Interest Rate, and program chosen. Facts to consider:

Borrowers own the home, no one else does.
Borrowers can stay in their home as long it’s their primary residence. The due date on the reverse mortgage is the borrower’s 150th birthday. In the case of a couple, as long as one of the borrowers remains in the home as their primary residence, the loan can stay in place.
Borrowers don’t have to make monthly mortgage payments.
Borrowers won’t lose their home for the lack of making mortgage payments.
Loan proceeds are not subject to income tax, are government insured and guaranteed to be there for you.
Borrowers or their estate get to keep any remaining equity after the loan is paid off.
As a non-recourse loan there is no personal liability to borrowers or their estate when repaying the loan and borrowers or their estate are not retaining ownership.
There are no income or credit qualifications and generally no out of pocket costs other than the appraisal.

With a “true” reverse mortgage, the most common being insured by FHA’s Housing and Urban Development (HUD), the Home Equity Conversion Mortgage, or HECM, the borrowers can remain in their home as long as the home is their primary residence. Even if one has used all the funds available from the reverse mortgage, the borrowers can stay in the home without having monthly mortgage payments or rent payments. The loan is guaranteed by FHA.

Borrowers have options on receiving their funds which include monthly payments, line of credit, lump sum or a combination of these. When paying off current mortgages, a requirement of the loan, in some situations the reverse mortgage proceeds may be used up front in essence using all the funds right away. This means they can still have the loan without mortgage payments yet improving their cash flow because they don’t have to make mortgage payments.

The borrower’s responsibilities include paying property taxes, keeping home owner’s/hazard insurance on the property as well as maintaining the property. If a borrower does not pay their taxes and insurance the loan becomes due and payable.

In the question above, to assist borrowers, and not call the loan due, if there are no funds left from the reverse mortgage, the lender may have paid the taxes and insurance and then required the borrower make payments to cover the taxes and insurance. This is NOT rent but a repayment because in essence the lender is loaning more money beyond the terms of the reverse mortgage loan.

Previously lenders may have paid on the borrowers’ behalf the taxes and insurance such as this but that is about to change, see my blog article regarding this, “Reverse Mortgage Borrowers’ Responsibilities… Or Consequences.”

If rent is being required on the “reverse mortgage” as suggested in the question, I’m guessing it is not a reverse mortgage insured by HUD or a proprietary (private) reverse mortgage offered by the FHA lenders which are modeled after the HECM.

It may have been a loan set up by a bank or another lender or through a private person/family member calling it a reverse mortgage but not having the same terms as a true reverse mortgage insured by HUD or by a proprietary program modeled after the HECM that doesn’t require payments and is non-recourse.

Note that the HECM and these proprietary reverse mortgages offer more protections than any other type of financing including require counseling by third-party HUD approved counselors.

Or it may have been someone who purchased the home and set up terms to have the woman stay in the home with a lease back and when funds from the sale ran out she had to pay rent.

I’ve also received the question about someone taking out a “reverse mortgage” and having to make interest payments. Again this would not be a HECM or proprietary program offered by FHA HUD approved lenders who’s programs don’t require payments and are non-recourse.

If one is having to pay rent or make any other form of mortgage payment it is not a true reverse mortgage. I suggested to the questioner to review the loan documents to determine what are the actual terms of that loan.

This leads to the conclusion that one should work with a lender who specialized in the HUD Home Equity Conversion Mortgage, is familiar with and takes the time to explain the terms of the loan, as well as follows HUD’s requirements including the requirement of the HUD approved counseling. A list of things to consider when talking with lenders can be found by clicking here. Borrowers should not sign documents without understanding the terms of the loan and consequences if the terms are not abided by.

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 Equal Independence For Seniors

Posted on July 2, 2010 by Beth Paterson, CRMP

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

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

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

Some instances where the reverse mortgage can help one remain independent include having funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever they desire.

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

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

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

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

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

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

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

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

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

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

Reverse Mortgage Borrowers’ Responsibilities… or Consequences

Posted on June 27, 2010 by Beth Paterson, CRMP

When loan documents are signed at closing, borrowers agree to the terms of the loan, whether a conventional loan for purchase; a conventional home equity mortgage; or a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by HUD; or a proprietary (private) reverse mortgage. As with any home loan, with the reverse mortgage borrowers are using the equity in their home and the title of the home remains in the borrower’s name, no the bank doesn’t own the home, nor do they want the home.

The reverse mortgage has helped seniors 62 and older remain in their home with their security, independence, dignity and control but not without responsibilities to adhere to the terms of the loan. The main responsibilities are to not violate terms of the loan, generally these include:

Paying property taxes
Keeping hazard insurance on the property
Maintaining the property
Paying association dues if appropriate
Not changing/transferring the title

Paying property taxes means keeping up with the county property taxes, paying them on time. If one doesn’t pay property taxes, with or without a loan, the county could start tax forfeiture or foreclosure.

Keeping hazard insurance on the property helps protect the homeowner and lender if there is any damage to the property. Being the lenders are invested in the property by lending money based on the home equity, they require the insurance so their investment is protected if there is damage. For example if a tree falls on the home and damages the roof, the hazard insurance will cover the replacement of the roof and bring the home back to the condition required for lender’s investment.

Maintaining the property is required to protect the lender’s investment in the property and includes keeping the home in good condition including not letting the property become run down. Keeping the roof in good repair, insuring the siding and trim do not have chipped or bear wood but are protected against the elements. Ensuring against safety issues such as automatic garage doors will rise if something is under them, railings are in place and stable on stairs and decks rotten boards are replaced. Interior maintenance is also important, for example having heating, electricity, plumbing, water in working order as well as safety issues such as railings on stairs.

If one is in a condo or town home and association dues are required, loans require that the association dues are kept current. If they are not kept current then the association has the right to force the homeowner from the property.

What are the consequences if the requirements of the reverse mortgage loan terms are not abided by? If terms of the loan agreement are not followed, the lenders have the right to call the loan due and payable or foreclose.

Changing or transferring titles will mean the loan becomes due and payable. For example if one decides to add a person to the title of the property, implement a Life Estate, or sell the property this changes who the lender’s have invested their interests. If the property is going to be put in a trust it will not mean the loan will be come due and payable however the lender will need to review the trust to ensure that it meets the requirements of their investors and in the case of the HUD insured HECM, the trust must meet HUD’s guidelines.

The area that has caused the biggest problem is when borrowers don’t pay their the property taxes and hazard insurance. Even though there are a large number of borrowers who have fall into this area, to date there have been very few reverse mortgages foreclosed because of the default of payment for taxes and insurance. HUD has been very forgiving and not pressuring the servicing companies to foreclose, however this is about to change.

Due to FHA’s budget, the arm of Housing and Urban Development (HUD) who insures the majority of reverse mortgages, is looking to find a solution to their budget shortfalls and make the program profitable. Fannie Mae who has a large portfolio of the HUD reverse mortgages is also encouraging the HECM servicers to address the issue of delinquent taxes and insurance to protect their company from losses.

With conventional mortgages, if taxes and insurance are not paid, the lenders will start an escrow account, requiring more money from borrowers in their monthly payments for the escrow account. The lenders then make the tax and insurance payments on behalf of the borrower from their escrow accounts.

Being reverse mortgage borrowers are not making payments collecting funds for the escrow account is not an option. What the servicing companies have done if there is a line of credit is use these funds to pay the taxes. If a reveres mortgage borrower is receiving monthly payments, they will be restructured so that the taxes and insurance can be paid. Unfortunately if all the funds have been used and taxes and insurance have not been paid the loan is in default.

HUD is working toward establishing guidance for the reverse mortgage servicing companies to address the tax and insurance delinquencies. But if the borrowers do not have the capacity to pay the taxes and insurances they owe, the servicer will be forced to foreclose on the property per HUD’s requirements. (Note that reverse mortgage servicing companies are required to abide by HUD’s requirements.)

Having reverse mortgage terms and responsibilities explained

While the originators, counselors and loan documents spell out these requirements, borrowers must take their responsibilities seriously. It is also their responsibility to be sure to look at their budget and have a plan to be able to pay their property taxes, hazard insurance as well as maintaining the property. Then they can remain in their home and enjoy the many benefits of the reverse mortgage.

Related articles on Reverse Mortgages in Minnestoa:

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.

Fast Forward To August… Seniors Would Have Lost Their Home To Foreclosure Under New Minnesota Reverse Mortgage Law

Posted on June 22, 2010 by Beth Paterson, CRMP

A couple days ago I shared the story of how the reverse mortgage was used to save Ken and Mary’s home from foreclosure. While we were able to make this happen now in just the 3 weeks we had, if we had received the call from Ken and Mary after August 1, 2010 when the new Minnesota reverse mortgage law is in affect, the ending would be different.

Because of the new 7-day “cooling off” period requirement, Ken and Mary would have lost their home. Why? Because the new law requires that borrowers receive and sign a commitment and then wait 7 days before the loan can be closed. This is in addition to the 3-day federal required rescission.

Let’s look at the timing. The loan was underwritten and cleared on a Friday, just 5 days before the payment was needed to be in the sheriff’s office. This, from my understanding is when the commitment would be issued. So if the commitment was issued on a Friday, the borrowers would need to receive the commitment, sign it and return it. Even if this was able to be implemented on Friday, the borrowers would need to wait 7 days before the closing could take place. (I’m assuming actual days, not excluding Sundays and Holidays as the 3-day rescission period does – this has yet to be defined.)

The 7th day would be the following Friday, already 2 days past the redemption date. Then we have the 3-day rescission period, Saturday, Monday, Tuesday. Funding would take place on the next Wednesday. This would have been 7 days after the redemption period. Seven days too late!

An additional risk of delay as a result of the new law could be the counseling. Currently reverse mortgage borrowers can receive counseling from HUD-approved counselors in the state or from a list of national counselors.

The new Minnesota law requires the reverse mortgage borrowers only receive counseling from HUD-approved counselors located in the state. Because there are only 7 counseling agencies in the state of Minnesota, with all borrowers needing to receive the counseling from these 7 agencies, borrowers could face a longer wait time to receive their counseling. Even now scheduling times with a counselor can be 2 to 3 weeks out. While they make some exceptions if one is in foreclosure, there could still be a longer wait to receive the counseling, not necessarily the next day as Ken and Mary were able to receive now.

Being processing of a reverse mortgage cannot start until after borrowers have received and signed the counseling certificate, the longer time frame could also mean the seniors losing their home.

The law makers, in an effort to “protect” seniors, will be causing some seniors to lose their home to foreclosure. Interesting enough the reverse mortgage bill was added as an amendment to the foreclosure bill.

I’m glad we were able to help Ken and Mary save their home. It’s going to be a sad day come August 1st when we have to tell the “Ken’s and Mary’s” who call us and say we have 3 weeks to redeem our home from foreclosure, “Sorry, we can’t take your application, process, close and fund the loan in that time frame because there is a new law that says you have to find a counselor in Minnesota that can do your counseling tomorrow and then after the file is underwritten and ready to close you have to have a 7-day cooling off period in addition to a 3-day rescission period.” This will break my heart.

In my opinion, one senior losing their home because of the new law and an extra unnecessary “cooling off” period is one too many!

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.

At The Eleventh Hour… Reverse Mortgage Used To Save MN Senior’s Home

Posted on June 20, 2010 by Beth Paterson, CRMP

The call came it at 5:00 p.m. on a Wednesday afternoon, “We’re in foreclosure, the redemption period ends in three weeks. We need a reverse mortgage.” Ken and Mary, in their 60’s, were in a tight spot and about to lose their home if we couldn’t get the reverse mortgage application taken, processed, closed and funded within the three weeks to the date of the late afternoon phone call. There were no exceptions to getting an extension of the redemption period.

Being from a smaller town, they hadn’t heard about reverse mortgages previously until they were visiting relatives in another state and heard them advertised. When back in Minnesota they looked up reverse mortgages and found their way to us. After an initial two-hour conversation explaining the details and terms of the HUD insured Home Equity Conversion Mortgage (or HECM) they decided to proceed knowing their only option to save their home was the reverse mortgage… they had already checked out other options with no success.

The first thing needed was their HUD required reverse mortgage counseling. Fortunately they were able to receive the counseling the next day. Once we received the counseling certificate with their signatures, on Friday, the following day, the application was taken and then the processing began. FHA Case number was assigned, title work ordered, appraisal order placed, credit report and flood certification obtained.

Then the surprises arrived. First was a lien from Veterans Affairs that would need to be paid. The credit report showed a judgment from a credit card debt that was also required to be paid. Then the appraised value came in less than expected. And the appraiser stated the roof needed repair along with another small repair. This meant that the Ken and Mary would need to get contractor bids for the required repairs.

These factors meant a difference in the amount of reverse mortgage funds that would be available. When the calculations were run, in order to pay off the mortgage in foreclosure, the VA lien, the judgment, and set aside funds for the repairs, Ken and Mary needed to bring money to the closing or lose their home.

HUD does not allow extra funds to be borrowed, funds need to be from the borrower’s own resources or a gift. This caused an additional obstacle: they had to come up with the extra money.

Determined to save their home from the foreclosure Ken and Mary worked and addressed all the issues that they faced. Fortunately they received the gift of funds, provided the necessary gift letter and documentation. The contractor’s bids were submitted to us and title work and payoff statements received.

Not an easy task with all the obstacles that popped up along with two weekends and a holiday falling during this time frame. However with lots of phone calls, explanations, guidance, and scrambling to pull everything together, the file was processed and submitted to underwriting, just 12 days after the application, 14 days after the initial phone call.

Two days later the file was underwritten, conditions received, addressed and then cleared. This was on the last day for the file to be closed in order to allow the 3-day rescission period before funding on the last day of the redemption period. The closing department rushed to get the closing package assembled and sent to the title company in time for the Friday afternoon closing.

The following Wednesday, just 3 weeks after that 5:00 p.m. phone call and on the last day for Ken and Mary to redeem their home from foreclosure, the reverse mortgage was funded. The title company representative drove to the county sheriff’s office to personally deliver the payment. Whew, just in time.

With sighs of relief, Ken and Mary are able to stay in the home that they had built and lived in since 1972.

It took a team of many who cared enough to rush things through to save this home from foreclosure. Besides our originator and processor, this included the counselor, the title company, the appraisal management company and appraiser, the lender’s processors, underwriter, closing and funding departments. How rewarding this is for all of us!

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

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

A Minnesota Reverse Mortgage Borrower Speaks Out On The Benefits With Her Reverse Mortgage

Posted on June 12, 2010 by Beth Paterson, CRMP

“I’m a happy consumer of reverse mortgages. I feel that it’s had an unjustly bad name in the past, at least I’ve heard under currents of ‘oh, you wouldn’t like that.’ Well let’s get at this logically. I’ve had a good experience with it and I like Beth’s approach. So I wanted to share my experience and what had changed in my life.

“Life was happy and good with a family and a career. I was all happy and good with the insurance that goes with a nice job. When retirement time came I had a fair pension and that with Social Security were going to see me through things.

“But that didn’t match my goals. I wanted to travel more when I was retired and visit my now expanded family and I was getting charges of $400 – $500 for tickets 2-3 times a year plus indebtedness for rewiring in the house, I wanted to remodel things and was running across some fascinating new hobbies. So I wanted to have new hobbies and travel. And do what was the healthiest thing I could think of on earth which was having a very right good time now and let the future take care of itself if I took care.

“So that led me to talk to some friends when I was running low on funds. Several people referred to the fact that Beth Paterson was quoted on reverse mortgages. To be quoted was quite a credential. I had a meeting with Beth. I was 73 at the time. I was undecided at the time so I waited. Time changed and I still had a lot of ambition and 75 came along and I wanted some improvements in my home and I was confidently that I could likely spend 10 or more years happily in my home if I had home health care. That is a big deal to know when you are 70 something to know that if you fall and need some months of assistance.

“When I talked with Beth the 2nd time it all came together. I was very happy with the amount of care she spent with me. My family was able to call her and get answers to our questions and they were pretty astute questions. Beth took the time to answer every one of them. I had shopped around and I stayed with Beth.

“My life changed from uncertainty on how I was going to pay my electrical bills, and whether I could even stay in this community or whether I needed to move to assisted living which meant moving. That wasn’t the preferred path. I was sure I could stay in my home. I was sure I could get the reverse mortgage loan. And now I was able to get a nice low rate.

“I immediately found that I could get relief from my old small mortgage. [The reverse mortgage needs to be in first lien position which means any current mortgages or liens need to be paid off. This eliminates mortgage payments because there are no payments required on the reverse mortgage. Borrowers are responsible for property taxes and hazard insurance.] The relief was so great that I could now stop worrying about how I could pay this within my income. So I left my Line Of Credit alone – didn’t use it – just the relief for paying off the old mortgage and the old debts and some ability to understand my budget and handle it better.

“Now I have my dignity back and my independence. And my children are heaving sighs of relief because they aren’t worried about me any more – I’ve answered some of their questions: where I do I want to be cared for as I age. They aren’t going to be blind-sided.

“I was very pleased with what happened.”

Edna, who took out her Home Equity Conversion Mortgage (HECM) in 2008, shared this story during a presentation where she joined me recently at a Minnesota senior resource fair workshop.

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

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

Minnesota Reverse Mortgages SIDAC

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

Tag Archives: Home Equity Conversion Mortgage

Can’t Afford To Retire? Maybe There’s An Answer!

Should One Refinance Their Reverse Mortgage?

Reverse Mortgage Borrowers’ Responsibilities… or Consequences

Fast Forward To August… Seniors Would Have Lost Their Home To Foreclosure Under New Minnesota Reverse Mortgage Law

A Minnesota Reverse Mortgage Borrower Speaks Out On The Benefits With Her Reverse Mortgage