Remember – October
1 is likely to bring some changes to the reverse mortgage world, so the time to
be talking with your customers is NOW!
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Reverse mortgages can be one tool for older homeowners seeking to
bring in extra income, but there is a lot of confusion and fear about these
products, their intention and who should obtain them.
Here are some answers to common questions about reverse mortgages:
1. Why should I (or anyone) consider a
reverse mortgage?
A reverse mortgage is a special type of loan for homeowners aged
62+ that lets you convert a portion of the equity in your home into cash. This
loan may be useful for someone who expects to live in his/her home for several
years and would like extra money to do so.
Reverse mortgages work best when they are considered part of a
broader financial plan, rather than as a tool for getting quick cash or
managing a financial crisis. Therefore, a reverse mortgage is not a fit for
everyone, and obtaining counseling is critical.
The National Council on Aging’s (NCOA) guide, Use Your Home to
Stay at Home™, explains the advantages and disadvantages of reverse
mortgages, as well as other resources available to help older homeowners age in
place.
2. What’s the difference between a reverse
mortgage and a regular home equity loan?
Unlike a traditional home equity loan (or a second mortgage), you
don’t have to repay a reverse mortgage loan until you either no longer live in
the home as your principal residence or you fail to meet the obligations of the
mortgage. At this time, there are also no income requirements for obtaining a
reverse mortgage.
There are different types of reverse mortgages with different
payment methods, but the most common is the FHA insured Home Equity Conversion
Mortgage (HECM). Homeowners can receive their payment either as fixed monthly
payments, a lump sum payment, a line of credit, or a combination of these.
3. What does a reverse mortgage cost?
Just like with a traditional mortgage, there are closing costs
associated with a reverse mortgage. These closing costs may include a loan
origination fee, appraisal, title search and insurance, surveys, inspections, recording
fees and other fees. Sometimes these costs can be financed into the loan.
The Federal Housing Administration (FHA) also requires borrowers
to pay a sizable upfront mortgage insurance premium on some HECM reverse
mortgages, which can affect the cost of these loans.
The National Reverse Mortgage Lender Association (NRMLA) has a
helpful reverse mortgage
calculator to estimate your costs. Fees vary by lender, so if
you are considering a reverse mortgage, it is important to shop around.
4. Aren’t reverse mortgages just scams that
give money to big banks?
Reverse mortgages themselves are not a scam, but there are
unscrupulous people and companies that sometimes use reverse mortgages to
exploit consumers. The FBI and U.S. Department of Housing and Urban Development
(HUD) urges vigilance when looking at reverse mortgage products.
The FHA maintains a list of legitimate reverse mortgage lenders
that offer HECM loans. To check your lender, visit the HUD
website. It helps to work with a lender who has many years of
experience with these loans.
Federal law prohibits anyone from requiring you to buy a financial
product (e.g., life insurance, long-term care insurance) in order to get a
reverse mortgage.
To learn more about common scams targeted at seniors, visit
NCOA’s Savvy Saving
Seniors®.
5. Why do I need to get counseling before
applying for a reverse mortgage?
The federal government requires that all reverse mortgage
borrowers receive counseling before they take out a HECM loan. Counselors are
trained and approved by HUD to provide unbiased information and to discuss
alternatives to a HECM, the costs associated with the loan, the various
products and payment plan options and much more.
The counseling session equips the borrower with the knowledge
needed to make an informed choice. Depending on your income, you may be charged
for this counseling.
You can get counseling through NCOA’s HUD-approved Reverse Mortgage
Counseling Network by calling 1-800-510-0301. You can also find
a counselor in your area at the HUD HECM
Counselor Roster.
6. How can I get real information about this
without somebody trying to sell me something?
In addition to the counseling service noted above, you may wish to
explore all of your options for staying at home. Use the QuickCheck tool on
NCOA’s consumer website, Home Equity
Advisor, to identify the different ways you can save money and
remain in your home. The site also features additional questions and answers
about reverse mortgages.
Scott Larson
Reverse Mortgage
Specialist
(408) 315-2503 direct
(408) 872-4002 fax
The Information Age
offers much to mankind, and I would like to think we will rise to the
challenges it represents. But it is vital to remember that
information – in the sense of raw data – is not knowledge, that knowledge is
not wisdom, that wisdom is not foresight. But information is the first
essential step to all these. -unknown
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