Memories Created for Reverse Mortgage Heirs

Posted on April 18, 2014 by sidac

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

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

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

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

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

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

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

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

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

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

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

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-Zf

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

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

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

Posted on February 23, 2014 by sidac

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reduced Loan Amount or Principal Limit

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

Higher Expected Interest Rates Equals Less Funds Available

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

Properties that qualify

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

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

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

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

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

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

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

*Name changed to protect privacy

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

Topic first published 2009; Updated 2014
© 2009-2014 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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.

Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

Posted on February 12, 2014 by sidac

It seems like every article, report or someone you talk with states the reverse mortgage closing costs are high. Have you looked at closing costs on a conventional home mortgage?

As with a conventional home mortgage (called a “forward” by HUD), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan. Let’s compare the costs side-by-side for a Home Equity Conversion Mortgage or HECM and a conventional/forward mortgage.

The third party and recording fees are standard for any loan. Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for their services. If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest. Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees	Reverse FHA	Forward	Forward FHA
Appraisal	$500	$450	$500
Credit Report	$25	$25*	$25
Flood Certification	$10	$10*	$10
Courier Fee*	$35	$35*	$35
Escrow, Settlement, or Closing	$275	$275	$275
Abstract or Title Search	$110	$110	$110
Title Exam	$110	$110	$110
Document Preparation	$125	$125*	$125
Title Insurance	$475	$392	$392
Endorsements	$50	$50*	$50
Recording Fees	$92	$46*	$92
County/Mortgage Registration Tax	$295	$384	$384
Plat Drawing	$60	$60	$60
Name Search	$35	$35	$35
Special Assessment Search	$35	$35	$35
Counseling Fee	$125	N/A	N/A
TOTAL THIRD PARTY FEES	$2,357	$2,142	$2,238

* These fees are included in the Qualified Mortgage (QM) Rule; included in as part of the “Closing Costs” under Lender Fees.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA. The FHA reverse mortgage includes a .5% or a 2.5% initial mortgage insurance premium, determined by the funds being drawn in the first twelve months. The advantages with FHA insuring the reverse mortgage include:

Guaranteeing the funds are available for you during the term of the loan.
Guaranteeing the reverse mortgage lender against default or shortfalls means the interest rates are lower compared to other mortgages for the benefits one receives with the reverse mortgage.
Providing a line of credit growth rate (available only with reverse mortgages).
As a reverse mortgage it is a non-recourse (no personal liability) loan; the FHA MIP will cover the difference to the lender rather than the borrowers or their heirs having to come up with the difference

The origination fee is what the originating lender receives to cover the loan officer’s compensation, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc.. The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans. HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000. With a minimum of $2,500.

In some situations the lender will offer no or a reduced origination fee however the interest rate will be higher than if one pays the origination fee.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination. One is essentially borrowing the interest and mortgage insurance premium each month because they are not making a payment. And as one draws from their line of credit or through monthly payments the loan balance will increase making the loan amount higher.

An estimate based on a $200,000 home value (based on loan amount at 80% for the Forward loans):

LENDER FEES	REVERSE FHA	FORWARD	FORWARD FHA
Origination/Points	$4,000	$4,800*	$1,600
MIP	$1,000**	$0***	$2,800
Administration Fees	$0	$900*	$900
SUBTOTAL LENDER FEES	$5,000	$4,800	$5,300

Prepaid Interest****	N/A	$375	$375
TOTAL LENDER FEES	$5,000	$5,175	$5,675

*QM Rule closing costs cannot exceed 3% of the loan amount. Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate.
** Based on .5% – taking 60% or less within the 1st 12 months.
*** Conventional loans may have a Private Mortgage Insurance fee.
**** Forward loans have up-front prepaid interest due for remaining days in the month of closing; this is an example amount. Funds will also be needed up-front to set up escrow.

TOTAL LOAN FEES	REVERSE FHA	FORWARD	FORWARD FHA
	$7,357	$7,026	$7,913

NOTE THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM! Refer to above comments on the benefits of FHA insuring the reverse mortgage.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses other than the FHA appraisal. (As of 2010 Appraisal Management Companies must be used to order and process the appraisal. This fee is required to be paid for by borrower up front or “out of pocket.”) All of the fees for reverse mortgages and forward mortgages must be disclosed on the Good Faith Estimate (GFE).

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

You also need to consider that if you do a forward mortgage now (if you even qualify), you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.

Whereas with the reverse mortgage you pay the closing costs up-front and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence. The additional funds would be either through monthly payments, a line of credit if that is the type of loan you have chosen.

Consider the benefits of the reverse mortgage which include:

No monthly mortgage payments, therefore increase your cash flow.
With no monthly mortgage payments required the risk of default due to not being able to make monthly mortgage payments is reduced. (Borrowers are still required to pay property taxes, keep hazard insurance on and maintain the property and pay home owners association dues if applicable.)
A line of credit option which has a growth rate making more funds available to you in the future, no other mortgage offers this. Or you can use the funds to receive monthly payments either as tenure (life of the loan) or an amount set by you.
Non-recourse, no personal liability to you or your heirs.

Now that we’ve compared the costs side-by-side, are you surprised that they are comparable to a conventional loan?

Comparison of fees first published 2009; Updated 2014; updated 12/3/2014
© 2009-2014 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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

Without The Reverse Mortgage Money I Would Have Been “Up The Creek Without A Paddle.”

Posted on January 19, 2014 by sidac

My reverse mortgage was a good decision I recently received the following letter from a reverse mortgage client of mine outlining why a reverse mortgage was a good decision.

Dear Beth,

I am writing about why a Reverse Mortgage was a good decision for me. I have had mine since 2010. My husband died in 2009 and although I was able to keep up with my monthly bills, I would run short of cash when Auto Insurance, Fire Insurance, Property Tax and other unexpected bills would arrive.

My family would always be willing to help me with those bills but I did not want to be a burden to them. My daughter-in-law Nancy belongs to a Women’s Group with you, Beth Paterson, and suggested that I may want to look into a Reverse Mortgage. The family was with me throughout the whole procedure and they agreed that it was a good choice for me.

Having a Reverse Mortgage has given me monetary independence and I never realized how important having cash available would be until I fell in October 2013 and broke my right shoulder. I needed care-givers two times a day. Without the Reverse Mortgage money I would have been ‘up a creek without a paddle’. I simply filled out a form, mailed it to the mortgage company and they transferred the needed funds into my bank account. Financial independence saved the day.

Barbara H.

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

The HECM Adjustable Rate program allows for borrowers to receive their funds in monthly payments, line of credit, lump sum or a combination of these. The monthly payments can be structured as tenure payments, for life of the loan, or as they need. The line of credit grows so more funds become available in the future. There is also a HECM Fixed Rate option which is favorable if one is pulling all their funds out in a lump sum.

As a non-recourse loan there is no personal liability when repaying the loan, the loan is repaid from the property only. This means if the loan balance when due and payable is $200,000 but the home can only be sold for $150,000 the borrower or the estate do not have to come up with the $50,000 difference. The loan is generally repaid from the sale of the property when the home is no longer the primary residence of the borrower, usually when they move, die or sell. If the home is sold for more than the loan balance the remaining equity goes to the borrower or the estate.

Barbara has the line of credit option which, with the growth rate, has grown over time. The line of credit is there for situations like hers.

Are you or do you know someone who would like to have access to funds providing financial independence and not rely on others? Consider a reverse mortgage!

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

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-Z2

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.

Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon

Posted on August 19, 2013 by sidac

The HECM reverse mortgage the "cheese" that is changing.

The HECM reverse mortgage is the “cheese” that is changing.

Seems no one likes change mainly because of fear, fear of change and fear of the unknown. But change is a part of life and so we need to accept and adapt. In the book, “Who Moved My Cheese?” by Spencer Johnson, M.D., the characters of this parable, mice Sniff and Scurry, and little people being the size of mice, Hem and Haw, search through a maze looking for their cheese, which kept moving. While Sniff and Scurry kept moving forward to find their cheese Hem and Haw hemed and hawed.

Those of us in the reverse mortgage industry as well as you, prospective borrowers, are in the maze and the FHA insured, Home Equity Conversion Mortgage or HECM reverse mortgage is the “cheese” that is moving. We don’t know exactly what direction the HECM will take, what we do know is after The Reverse Mortgage Stabilization Act of 2013 was passed giving HUD authority to make the changes to improve the fiscal safety and soundness of the program, changes will be taking place with reverse mortgages in the very near future.

As we navigate through the maze of the HECM reverse mortgage we are looking at the likely changes:

The amount of the principal limit or maximum funds available to borrowers will be less.
Additionally we expect that borrowers may be restricted on the amount of money they can draw up front.
Financial assessments will be implemented to determine one’s ability to pay taxes and insurance.
Borrowers may be required to set aside funds for taxes and insurance payments.
Some homeowners may no longer qualify for the reverse mortgage based on these changes.

As the characters in “Who Moved My Cheese?” reacted differently, we are all going to be reacting differently to the changes. Which character are you going to be like?

Are you going to be like Sniff and Scurry who saw the changes coming and take action and move forward now?
Or like Haw and realize if you stay in the same situation you could be worse off than if you take action now?
Or are you going to be like Hem and let your fear keep you waiting too long for the most funds available and/or long enough you may not qualify for the new program?

Age only matters if you’re cheese… or doing a reverse mortgage.

My suggestion is if you, or someone you know, are considering a reverse mortgage, do not let your fear keep you from moving forward. Be like Sniff and Scurry and move forward now to find the “cheese” and take advantage of the current reverse mortgage program before the changes go into effect so you still receive the biggest benefits.

If you are in Minnesota and want to ensure you are locked into the current reverse mortgage program before it changes, please contact my office to answer your questions and to assist you. For other states contact your local reverse mortgage originator for assistance.

And for me, I’m taking the paths of Sniff and Scurry, by accepting that changes happen, anticipating the changes, as well as adapting to the changes as they are necessary for the survival of the reverse mortgage program. As I wrote when some lenders exited the reverse mortgage industry, We Are Not Chicken Littles – The Sky Is Not Falling, the reverse mortgage will remain a viable option but it will be different than it is today. I will continue to be here even after the changes have taken place to assist seniors to remain in their home and have funds for their needs and wants through reverse mortgages.

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.

The answer to the common reverse mortgage tax question

Posted on February 16, 2013 by sidac

As people are preparing their taxes, I’ve been receiving the question, “Is the interest on my reverse mortgage deductible?” So let me answer this question for you.

For interest to be a tax deduction for individual taxpayers, it must first be paid. Being one is not making payments on their reverse mortgage, the interest is not being paid but accruing on the loan along with the FHA Mortgage Insurance Premiums (MIP) and servicing fees (applicable on some reverse mortgages). Therefore the interest is not a tax deduction until it’s actually paid.

For FHA Mortgage Insurance Premiums IRS states, “You can treat amounts you paid during 2012 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.” However, as with the interest on a reverse mortgage, the MIP amount must first be paid.

There is a way to receive the tax deduction during the term of the reverse mortgage loan. While payments are not required with the reverse mortgage, borrowers may choose to make payments. There are no penalties for making these pre-payments and the borrower has the option on when and how much they may choose to pay.

Payments reduce the Unpaid Principal Loan Balance. The loan balance is made up of the following categories: MIP, Servicing fee, interest, and principal amount (sum of amount borrowers obtain for their use, i.e. paying off previous loans and liens, other closing fees, and other personal uses). When borrowers make payments to reduce the loan balance they are first applied to the MIP, then the servicing fees, then the interest followed by the principal balance.

Once the borrower has paid enough to cover the accrued MIP, service fees, then additional payment amounts are applied to the interest on the loan. When interest paid in a calendar year exceeds $600 the lender will send you a 1098 int tax form for the amount of interest paid.

Since the payments have to cover the initial MIP of 2% of the Maximum Claim Amount, then the on-going MIP that has accrued along with any servicing fees before they are applied to the interest, most borrowers don’t find it feasible to take the deduction. The loss of a tax deduction may be considered a negative of the reverse mortgage for some people but the pros and cons need to be weighed.

Making pre-payments on one’s reverse mortgage may still be beneficial in reducing the Principal Loan Balance. And if one has an adjustable rate, having access to the funds in the future.

If one has the adjustable rate HECM the full payment amount can:

be applied to create or increase the line of credit in which these payments can be borrowed in the future;
or applied to their monthly payment to increase the amount they receive monthly or the length time they receive the monthly payments.
If not specified, the payment amount will be applied to or create a line of credit.

If one has a fixed rate reverse mortgage the payment reduces your loan balance as outlined above but the funds do not become available to re-borrow in the future.

Keep in mind that payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

When the loan is paid in full the interest will have been paid and could become a deduction at that time to the borrower or their estate.

Most seniors who do a reverse mortgage do not have a significant income tax burden therefore a tax deduction is not a large concern for them. Many borrowers feel that receiving funds for one’s needs and desires with no required monthly mortgage payments outweigh the loss of the tax deduction. They want to live comfortably, have some “elbow room,” and be independent with security, independence, dignity and control.

I am a reverse mortgage expert, not a tax expert or advisor. Check with your tax advisor or IRS regarding tax deductions for your individual 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.

FHA Lending Limit for Reverse Mortgages Extended

Posted on December 7, 2012 by sidac

FHA Lending Limit of Reverse Mortgage $625,500 We got word today that FHA is extending the Lending Limit of $625,500 for reverse mortgages through December 31, 2013. This is good news for those who have a a higher home value!

To determine the loan amount on the FHA HECM (Home Equity Conversion Mortgage), the lending limit or home value, whichever is lower, is used. For example, the value of one’s home may be $900,000 but FHA will use the Lending Limit of $625,500 to calculate the loan amount for a FHA HECM. For reverse mortgages the age of the borrower and the Expected Interest Rate of the program chosen are also used to determine the Principal Limit or Maximum Loan Amount.

For more information see Mortgagee Letter 12-26.

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.

Have Senior Homeowners With Reverse Mortgages And Tax Defaults Really Gone Into Foreclosure and Lost Their Homes? You Are In For A Surprise!

Posted on October 28, 2012 by sidac

With all the media hype that seniors are losing their homes because they have a reverse mortgage and have tax defaults, the latest data shows the homework wasn’t done before reporting their stories. Trying to paint a negative of reverse mortgages is widespread without the data to back it up.

The fact is rather than foreclose, reverse mortgage servicers made advancements on behalf of borrowers for their insurance and property taxes defaults. And since January 2011 when FHA introduced loss mitigation tools the servicers have been working with the borrowers who were delinquent on their property taxes and insurance. As a result, 20% of those in these situations have been repaid. Another 60% of the defaulted borrowers have begun making repayments.

According to HUD’s Director of Single Family Program Development, Karin Hill, the default rate for the more recent Home Equity Conversion Mortgages (HECMs) is lower than the loans done previously with the worst performing being from 2007 and 2008 which account for just under 40% of all those in default.

The first four years after origination the probability of default increases then slowly declines over time noted Hill. Younger borrowers (62 to 65) are the most likely to default however they are making more repayments than older borrowers.

While we haven’t received data on those who have not made repayments, servicers and HUD remain committed to assist senior homeowners to remain in their home. It shouldn’t be assumed that reverse mortgage borrowers have gone into foreclosure. It’s important to remember that even without a reverse mortgage in place, these homeowners who haven’t paid their property taxes face foreclosure or tax forfeiture through the county. The reverse mortgage is not the reason senior homeowners go into foreclosure.

While the headlines report senior homeowners are losing their homes because of a reverse mortgage and tax defaults, the data shows otherwise; it’s just more myths about reverse mortgages.

Resource: The National Reverse Mortgages Lenders Association (NRMLA); data presented at the 2012 Annual Meeting & Expo by senior HECM managers.

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 Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home

Posted on October 21, 2012 by sidac

There is a lot of talk about the issues of reverse mortgage defaults causing borrowers to go into foreclosure and lose their homes because of not paying their taxes and insurance… claiming that the tax defaults are a reason one should not do a reverse mortgage. The media and so-called senior advocates are pushing this point hard. Are you aware that anyone who doesn’t pay property taxes on one’s property can face foreclosure?

If one has a conventional mortgage and doesn’t pay their taxes, the lender will pay the taxes on behalf of their borrower and increase the homeowners mortgage payments to cover the taxes. If they let their homeowners insurance drop, the lender will place “forced” insurance on the property and pass the costs along to the borrower.

Even if one doesn’t have a mortgage, a reverse or conventional, one can lose their home for not paying their taxes – the counties foreclose on them. Here in Minnesota the county claims the property as a tax forfeiture.

Ann, a 65 year old woman called me 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 the details of the reverse mortgage: A reverse mortgage is a loan 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* 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.

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 and 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 to the lender.

In her situation she would have had a large line of credit that would allow her funds to pay her taxes and insurance going forward… and some other life necessities or a little extra here and there to maintain or improve the quality of her life.

There are many homeowners who lose their home for not paying their property taxes. When one gets behind on their taxes, they also reduce their option of qualifying for a conventional mortgage, especially with the tighter credit and income qualifications.

And think about it, if one doesn’t have insurance on their home and there is a fire or a storm that destroys the home, the homeowner loses their home and they don’t have money to rebuild.

Another consideration regarding reverse mortgage defaults is they are minimal compared to conventional or “forward” mortgage default foreclosures. I’m sure some of the forward foreclosures included seniors who had been sold a mortgage without consideration on whether they would be able to make payments in the future. In fact I know of an 80+ year old woman who did a 30-year mortgage… what was the likelihood she would be able to make mortgage payments for 30 years? A reverse mortgage would have been a better loan choice for her.

When the senior homeowners with forward mortgages have had “life happen” and they couldn’t make the payments, they also didn’t qualify for a reverse mortgage because they owed more than the reverse mortgage proceeds, they went into foreclosure. (We often receive calls from seniors in this situation and have to say we can’t do the reverse mortgage for them.) If these seniors had done the reverse mortgage initially instead of doing the forward mortgage, they would be benefitting from no mortgage payments and having funds to pay their taxes and insurance as well as for their other needs.

Reverse mortgages make a huge positive difference in the life of senior homeowners; the majority of reverse mortgage borrowers are satisfied with their reverse mortgage. Reverse mortgages shouldn’t be discounted because a small percentage are in default.

When reverse mortgage borrowers haven’t paid their taxes the lenders/servicers work with the borrowers to find ways to help them including sending them to counselors who work with borrowers to find a way to assist them address the issue.

Unfortunately, Ann’s brother had told her reverse mortgages are bad and she shouldn’t do one and she listened to him. Consequently the county foreclosed on her. She not only lost her home and a place to live, she lost the $280,000+ in equity. Whereas a reverse mortgage could have saved her home from foreclosure and she would have been able to pay her taxes and remain in her home with funds for other needs or desires including paying her future taxes and insurance.

So you see, reverse mortgage tax defaults are really defaults on taxes with a reverse mortgage in place and are not the only reason seniors can lose their home – they happen with conventional or no mortgages at all as well. The media and politicians should stop attacking the reverse mortgage industry as the bad guys and gals – counties across the country are foreclosing on seniors’ homes too.

*To address the issue of tax and insurance defaults, in the near future we anticipate financial assessments with the reverse mortgage to determine if the borrowers are able to pay property taxes and insurance into the future.

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

Posted on May 6, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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: Reverse Mortgages News

Memories Created for Reverse Mortgage Heirs

Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

Without The Reverse Mortgage Money I Would Have Been “Up The Creek Without A Paddle.”

Changes Are Inevitable and They Are Coming To Reverse Mortgages Soon

The answer to the common reverse mortgage tax question

FHA Lending Limit for Reverse Mortgages Extended

Have Senior Homeowners With Reverse Mortgages And Tax Defaults Really Gone Into Foreclosure and Lost Their Homes? You Are In For A Surprise!

Are Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home