Tag Archives: Senior Independence

A New Reverse Mortgage Option, The HECM Saver… Is It A Good Option for Seniors?

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AS OF OCTOBER 1, 2013 THE HECM STANDARD AND HECM SAVER PRODUCTS ARE NO LONGER AVAILABLE.

MN Man benefited by reverse mortageIn 1989 FHA insured the first HUD reverse mortgage known as the Home Equity Conversion Mortgage or HECM.  Through the years it has pretty much been the same until October 2010 when HUD introduced the HECM Saver.  Before determining if the HECM Saver is a good option one must first have an understanding of reverse mortgages.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for seniors home owners 62 and older.  Advantages for seniors are with the reverse mortgage there are no income or credit score requirements and no monthly payment requirements.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen.  The funds available can be received in a lump sum, monthly payments, or a line of credit.  The monthly payments can be structured as one needs or for life as long as the home is the primary residence.  Funds in the line of credit grow so more funds can be available in the future.

The borrowers keep the title to the home and are responsible for taxes, insurance, and maintaining the home.  Unlike a conventional loan the interest accrues, increasing the balance with no payments due until the home is no longer the primary residence of the borrowers.  In addition, the reverse mortgage is a non-recourse loan which means there is no personal liability to the borrowers or their estate for repayment if they or their estate are not retaining ownership.  Remaining equity goes to the borrowers or their heirs.

One can have a trust, life estate, or receive Medical Assistance, Elderly Waiver or other public benefits.  In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home.  Not considered income, Social Security and Medicare are not affected.

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

However the closing costs often scare people away.  As with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees.  With the FHA HECM borrowers also pay a mortgage insurance premium (MIP).  Because the fees are upfront, they are often perceived as high.

With the introduction of the Saver, which has all the same features of the original HECM, the upfront FHA Mortgage Insurance Premium is 0.01% compared to 2.00% which helps reduce the upfront closing costs.  But it also reduces the Principal Limit available to borrowers.

The HECM Saver could be beneficial to those who don’t want to pay as much in the upfront closing costs but also don’t want to use as much equity from their home.  It can be ideal if one plans on moving in a shorter period of time or has a higher home value and wants to preserve more of the equity.

HECM Saver Good OptionTim and Mary have a conventional mortgage and they would like to eliminate the mortgage payments.  In addition they want to pull out as little of the equity as they can.  The HECM Saver is ideal for their situation because there are enough proceeds to pay off their current mortgage and use less of their equity.

Judy considered the HECM Saver but has chosen to go with the HECM Standard adjustable rate because after paying off her current mortgage and some other debts, she will have more funds in a line of credit for future use.

One must always look at their situation to determine which program will work best for their circumstances.  A consideration while reviewing the options between a HECM Saver and the HECM Standard (the original program), is whether in a few years one will have used all the proceeds from the HECM Saver and will need more funds.  While one can refinance a reverse mortgage when refinancing a mortgage one pays the closing costs again (just as is done with a conventional mortgage) and the first mortgage must be paid off.

Consequently while saving on the upfront MIP with the HECM Saver, if more funds are needed at a future date, it could be more costly when refinancing by paying the closing costs a second time.  And one may or may not even qualify to refinance their HECM Saver.

So is the HECM Saver a good option for those seeking a reverse mortgage?  It certainly should be an option considered and could be a good option depending on one’s circumstances.

© 2010 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-oK

Related articles:

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.

Need Home Modifications To Age In Place? A Reverse Mortgage May Help

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Seniors want to Age in PlaceMost seniors want to stay in their homes and remain independent yet often believe they can’t for a number of reasons.  Making some home modifications could make their wish of remaining in their home a reality by providing a safer more comfortable environment.

More than one third of those age 65 and older suffer injuries from a fall each year according to research from the National Center for Injury Control and Prevention.  AARP research suggests the leading cause of injury and deaths among seniors is falls.  Modifying one’s home can help to eliminate common hazards and help to improve the quality of living in one’s home.  Improving the safety of one’s home can help one have more comfort, convenience, and  remain independent and active in their community.  Some people have mobility limitations from causes other than falls and still want to stay in their home.  This too can be accomplished with some home modifications.Home modifications can help seniors remain in home

Bathing, toileting, cooking, and climbing stairs can be made easier to perform by adapting one’s home.  Modifying one’s home can be as simple as installing grab bars in the bathrooms, removing throw rugs, moving electrical cords from hazardous locations, touch buttons for turning lights on and off to installing entrances to accommodate wheel chairs and lifts to access another level.

By assessing and modifying one’s home, one can live more safely, comfortably and remain independent.  But how can one afford this?  A reverse mortgage may be the solution beyond what Medicare or insurance will pay for.

A reverse mortgage is a special loan to allow seniors to remain in their home with security, independence, dignity, and control by converting the equity into cash.  Similar to a conventional loan where a lien is placed on the home yet the borrower retains ownership.  The reverse mortgage is different from a conventional loan with no income or credit scores required and no monthly mortgage payment requirements.

The reverse mortgage loan amount is based on the age of the borrower, their home value and an Expected Interest Rate.  Due and payable when the home is no longer the primary residence, usually when they move, die or sell, a reverse mortgage can allow one to remain in their home and use the equity now.  As a non-recourse loan there is no personal liability to the borrower or their estate as long as they are not retaining ownership.  If the home is sold for more than the loan balance then the borrower(s) or their heirs keep the difference.Reverse Mortgage Helped Bob Modify His Home

Bob, a Minnesota senior who had lost his wife wanted to stay in his home.  He did the reverse mortgage and with a portion of his proceeds he modified his home to be prepared for the future such as having the doorways wider to accommodate a wheel chair and grab bars installed.  He’s thrilled that he was able to have his home modified and will be able to remain there for years to come.

© 2010 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-ob

Related articles:

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 Reverse Mortgage Or…? Other Options To Consider

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Senior Needing MoneySeniors 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.

  1. 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.
  2. 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.
  3. 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.
  4. Is selling a cabin or other property an option?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.
  5. 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?
  6. 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.
  7. 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?
  8. 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.Selling and Moving Or A Reverse Mortgage?
  9. 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?
  10. 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?
  11. 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.
  12. 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?”

Reviewed Options But Happy With Reverse Mortgage DecisionDoes 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.

© 2010 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-nC

Related articles:

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!

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Able to retire with a reverse mortgageWith 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.

Maintained retirement lifestyle with reverse mortgageMike 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.

© 2010 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-nn

Related articles:

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?

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MN Reverse Mortgage Borrower Can Stay In HomeA 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.Having Reverse Mortgage Documents Explained

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.

© 2010 Beth Paterson, Beth’s Revers 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-mD

Related Articles:

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

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Reverse Mortgage Borrower Has IndependenceAs 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 150th birthday.
  • Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
  • A borrower won’t lose their home because 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.Celebrating Our 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.

© 2010 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-m7

Related articles:

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

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Signing Reverse Mortgage ApplicationWhen 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

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.

© 2010 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-lL

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.

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

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MN Woman Shares The Benefits Of Her Reverse Mortgage“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.

© 2010 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-l6

Related articles:

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.

Using The Reverse Mortgage As A Tool To Strategically Manage One’s Assets

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Reverse Mortgage Works Wonders for MN womanDorothy closed on her Home Equity Conversion Mortgage (HECM) reverse mortgage in 2006.  Now four years later during a presentation where she joined me at a Minnesota senior resource fair workshop , she shared how the reverse mortgage has been a tool to strategically manage her assets and the benefits she has received from her reverse mortgage.  Here’s what she had to say.

“I have a single family residence and have lived there for many years and working and wasn’t looking too much to the future.  I ‘knew’ Social Security was going to take care of me… my mother had gotten by on it and I figured I would too.

“I had worked part time as a travel escort and the travel bug had bitten me through the years.  I retired at 65.  While the career line I had allowed me to take extra vacation time to escort tours what it didn’t do was provide a pension.  So I had no hospitalization or a pension when I retired.  I didn’t face those facts right away.  I had invested and purchased stocks over the years in modest amounts.  I figured that would be my answer to any and everything.  When I wanted to travel I just cashed in part of a stock and I took off and did some great fun things.

“However we know the stock market took a plunge a couple of times and what I had was back down to half or less than what I had built up.  Also I was having to use this in addition to my Social Security income.  Fortunately I was able to have paid off my mortgage by the time I retired so I didn’t have those payments.  I thought it would be easy street.

“I had a house paid for and was able to get a line of credit from the bank.  Anything I wanted to do I would I just borrow the money on the line of credit.  After that climbed I would cash some stock in to pay the line of credit.

“Pretty soon I needed a car.  I took out a loan on the car.  Those payments got kind of high.  Pretty soon I’m paying the line of credit and the car payment.  And I was using up my stock portfolio.  I was owing more to the bank than I had stock to pay off all this line of credit.  The stock broker I was talking with said, you have your house paid for, the best thing I could do would be to get a reverse mortgage.

“Luckily I was able to meet up with Beth Paterson.  We talked so I would understand the program.  The man I had worked for was a very astute business man and had run a mortgage company.  So I took the information to him and asked if there was anything that looked doubtful to him; is there anything that I don’t see or is this something I should do?  He said, ‘It’s the best thing in the world for you.  I can’t advise you to do anything better for you.’

“I have my reverse mortgage.  I decided that as long as I was getting my Social Security and didn’t have to touch my stock, I wanted a reverse mortgage line of credit.  I didn’t want a lump sum.  My reverse mortgage line of credit would grow at nice increments – it was growing faster than my stock portfolio was growing.  [The reverse mortgage line of credit grows at .5% more than the interest on the loan.  For example if the interest on the loan is 2.5% the growth rate is 3% on funds left in the line of credit.]

“I also decided to take a minimal monthly payment.  Now I’m going to get that payment until I’m 150.  I’m going to be 83 this year and I’ve got my mind set that I’m going to live to 150 so that I can get that last dollar from HUD that I’m helping to pay into on this insurance program. [Note the due date listed on the reverse mortgage recorded at the county is the 150th birth date of the youngest borrower.]

Reverse Mortgage Allows Dorothy to Travel“The reverse mortgage has given me a great feeling of security.  Because if I want to take a trip I just send a fax in and request the amount of money I want.  I don’t have to touch my stock.  My line of credit is going up every month as long as there are funds there.  It’s much better than CDs.

“I’ve done home repairs, this winter I had to replace my car and it turned out I couldn’t use my driveway so I’ve taken some funds to get my driveway repaired.  My yard needed some attention that I had overlooked because I didn’t want to spend the money.  So I’ve taken some funds for that too.  I still have a nice sum in my line of credit and I haven’t had to use my stock.

“I watch the market go up and down and it’s not life and death like it had been before when I knew I just had that stock and when it was gone then what would I do.

“It’s worked wonders for me.  I’ve been able to take trips with the money, repair my house, re-roof it, and do this and that.  It’s given me ease of mind and it’s certainly helped my kids because at one point I think they thought they would have to help me financially and they weren’t looking forward to that.  Now that worry is off their mind.  So as long as I can, I will stay in my home, and that’s what I plan to do.”

This is one example of how a reverse mortgage has made a positive difference in the life of a senior and allowed her to strategically manage her assets during her retirement years.

© 2010 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-kD

Related articles:

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.

Do You Understand The Reverse Mortgage Closing Costs?

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Signing Reverse Mortgage ApplicationAs with a conventional mortgage, there are costs associated with a reverse mortgage.  While perceived as high, once understood you’ll see the reverse mortgage costs are comparable to a conventional loan.  Most people don’t understand the fees, what they cover or why they have to be paid with a conventional loan either, they just accept them as part of doing a loan.

One difference is that with the HUD insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), HUD regulates the fees and does not allow marked up or “junk fees,” borrowers only pay the actual costs.

To get clear, let’s understand what the Minnesota fees are and what they cover.

Fee Explanation Cost/Charge
Origination Fee Covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, administrative costs, business overhead (computers, office space, utilities, health insurance, office supplies, marketing, processing, underwriting, etc.)  (Note processing and underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.) HUD sets guidelines for the origination fee: Maximum of 2% of the first $200,000 of the home value or lending limit, 1% on the balance thereafter with a cap of $6,000 or a minimum of $2,500.
FHA Mortgage Insurance Premium A required charge from FHA because they are insuring the loan.  Keeps the interest rate lower, allows more to be borrowed, guarantee funds are available, and covers risk so borrower or heirs are not personally liable. 2% of the property value or mortgage lending limit, whichever is less.
Appraisal Fee for FHA licensed appraiser to determine the market value of the property.  Includes a management fee for an independent company to order the appraisal. $450 – $500
Repair Administration Fee All loans with repairs are charged an administration fee for overseeing that the repairs are completed, ordering inspection, processing payments, etc. 1.5% of the repair bid
Credit Report Fee This is to check if there are any liens or judgements against the property or person that would need to be paid or other contradictory information. $18 – $20
Flood Certification Fee For verifying whether flood insurance is required or not. $15 – $20
Courier Fee To send pay offs to a current lender if there are any. Approximately $30 each
Counseling by Third-party HUD approved counselor A fee may be charged to the borrower for counseling services as long as it does not create a hardship.  The counselors must make a determination about the borrowers ability to pay which may include factors such as income and debt obligations – HUD recommends a written procedure for this.  Counselors must inform borrowers of the fee structure in advance of services and cannot be turned away, nor the counseling certificate be withheld based on failure to pay.  The Counseling fee may become part of the costs at closing. Up to $125 allowed by HUD
Document Preparation Fee Charge for preparing the loan documents for closing.  A specialized company prepares the loan package. $100-$125
Escrow, Settlement or Closing Fee Charged by the title company for handling the title work and closing of the loan.- – – – – – – – – – – – – – – – – – – – – – – – – – – – – -Sometimes there is an additional signing/notary fee or an additional fee for going to a borrower’s home. Generally $250 – $350- – – – – – – – – – – – – – – $125-$200 signing/ notary fee
Abstract or Title Search This charge is for searching the county records. $150-$185
Title Examination This is for the examiner to review the title and put the commitment together. $135-$150
Title Insurance Title company’s insurance on the property guaranteeing clear ownership and protect lender if there is a defect in the title.  Different than owner’s title insurance policy. Based on property value.
Recording Fees Fees for recording documents with the county such as mortgage, deeds, county taxes, bankruptcy, name change due to divorce or loss of spouse $46 each + a $5 conservation fee
County Tax Mortgage Registration Tax required in Minnesota and collected by the county. Based on Principal Limit
Survey/Plat Drawing; Name & Assessment Search Fee for obtaining and reviewing the plat drawing; Fee for searching names and assessments on title $60; $30; $30 = $120 combined (higher for some counties)
Fees Paid by Lender to Broker such as Yield Spread Premium; Service Release Premium; Lender Paid Broker Compensation Brokers/originating lenders are paid in two ways, one by you (the origination fee) the other by the lenders.  Lenders pay brokers/originating lenders compensation for submitting loans to their company.  This compensation also covers the broker’s/originating lender’s time and costs associated with their running their business.It does need to be disclosed on the Good Faith Estimate.  Note that federally chartered banks do not have to disclose this information to borrowers even though the same compensation is paid. This is NOT A BORROWER EXPENSE!To disclose this to you, on the GFE it will be shown as a fee then credited back so it is not actually charged to you.

As the RESPA (Real Estate Settlement and Procedures Act) changes effective January 1, 2010 a Good Faith Estimate (GFE) can ONLY be provided with an actual application.  It is no longer allowed for the informational or quote package to include a GFE.

  • Information (in addition to the name, birthday, property information, current loan details,) that will trigger the application include the Social Security Number, Monthly Income, assets, debts, any other pertinent information.  This information should NOT be provided until lender is chosen and ready to proceed with an application.  Once lenders have this information they may start processing the loan.

Note that the fees, other than the Appraisal and possibly the counseling fee, are wrapped into the loan so there are no other out of pocket costs.

Being clear and having an understanding of the reverse mortgage costs helps you make better decisions and takes the fear away from the reverse mortgage.

© 2010 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-kg

Related articles:

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.