When a reverse mortgage can make sense

Q: Our home has no mortgage. I am 86 and my wife is 79. Home value is about $260,000. Would we benefit from a reverse mortgage and what are disadvantages? Melvin Gatlin, Christiana, Tenn.

A: Not knowing all that's needed to give a complete answer, the short answer is yes.

"I believe there would be a benefit to you from a reverse mortgage," says John Salter, an associate professor in the Department of Personal Financial Planning at Texas Tech University.

He says the Home Equity Conversion Mortgage (HECM) program offers a way to use the equity in your home through a line of credit, a monthly payment called a tenure payment, and a source of cash if needed.

The first benefit, he says, is the line of credit. "There are many advantages to setting up a HECM line of credit, which include the lender cannot call, cancel or reduce the line such as in a traditional home equity line of credit, the line of credit actually grows over time based on the borrowing rate, and the payback is flexible and voluntary," says Salter. That, in essence, means you can pay back any borrowed money at your own will.

In your case, Salter says a line of credit can be useful as a source of emergency funding, a place to draw cash for needs if your portfolio has a severe loss and you would prefer not to sell, and it can be used down the road. If your portfolio gets depleted, you can live on the line of credit.

Other benefits: The program is non-recourse; the loan value will never exceed the home's market value. "So, if you sell or upon death the only amount that is owed is the loan balance up to the home value," says Salter.

There are, of course, downsides to reverse mortgages. If you borrow funds from the mortgage, Salter says you are creating a debt that has to be repaid in the future upon sale of the home or death.

Plus, the mortgages aren't necessarily free. A few lenders have a zero-cost or minimal-cost option to open a line of credit. But those reverse mortgages may or may not have a nominal monthly service charge, says Salter.

Plus, to get a low-cost reverse mortgage, Salter says you'd need to choose the higher lender borrowing rate, called margin. "This increases your borrowing cost ... if your plan is to have the line of credit is for emergencies or future financial protection," says Salter. "This may not be as big of an issue and may be to your benefit later in terms of a larger line of credit available to you."

The line of credit would also be beneficial if you are in a position where you and your wife are comfortable now, but want a safety net for possible future financial issues, says Salter. "If you are in need of shorter-term cash, you can still use the line of credit for this," he says. "But be aware there is a new rule where you can only use less than 60% of the benefit in the first year to avoid a higher up-front cost, and you may be better off long term paying up-front costs to obtain a lower rate if you would plan to use funds earlier."

Salter's bottom line: If your house is paid, and you are financially comfortable, setting up the no-cost reverse mortgage seems like a logical choice. "You may never need it, but it will be there if you do," Salter says. "Just remember any funds borrowed is debt in your grand financial picture."

To learn more about reverse mortgages, check out the government's website, which also has a list of lenders to contact

read more: http://www.usatoday.com/story/money/columnist/powell/2015/06/27/reverse-mortgage-answers-robert-powell/28977291/

Approach reverse mortgages with caution

KIMT News 3 – You’ve no doubt seen the commercials and heard the advertisements, but chances are there is still a lot about reverse mortgages you may not know.

Their ads are hard to miss, but it’s what’s not being said that has financial experts warning us about tempting reverse mortgage loan offers.

These mortgages are known for being popular options for seniors looking to supplement their retirement funds. Finance experts say, many ads can leave homeowners with the impression that they’re risk-free.

These experts say that in many cases, people are unaware that there are costs associated with the loan that uses equity on your home for collateral.

“Be careful and do your research. We ask family members to be involved. Make sure that it is something that is going to be workable, so that you’re not signing something that you would be stuck in. We always ask that you be very careful about what you do,” said Kathye Gaines, Branch Manager with Consumer Credit Counseling.

The loan is available for those 62 and older and only if the youngest person in the household is 62 as well.

One negative aspect of the loan maybe that some outlive their loan money, forcing the responsibility of paying the loan on their family.

One common misconception experts say is that the loan is some type of government benefit. In reality, reverse mortgages have fees and compounding interest that must be repaid just like other home loans.

“You are able to stay in your home and you actually receive money from the equity that you have built in to your home,” said Gaines.

If you default on your loan however, the bank you finance with can foreclose on your home.

see more: http://kimt.com/2015/06/08/approach-reverse-mortgages-with-caution/

What Is a Reverse Mortgage?

A reverse mortgage is a type of home loan that doesn't require any payments until after you die, as long as you continue living in your home. If you move out or decide to sell your house while still alive, the reverse mortgage comes due immediately. You can receive the loan proceeds in one lump sum or in monthly income payments.

Who Can Benefit From a Reverse Mortgage?

It's important to be aware of the age restrictions for reverse mortgages: Everyone listed on the deed of the house, even if they don't sign the loan, must be at least 62 years old for the house to qualify for a reverse mortgage. Also, reverse mortgages aren't useful if you still owe a lot on your regular mortgage. For example, if you owe $100,000 on your house, and you get a reverse mortgage for $125,000, you would only receive $25,000. The rest of the reverse mortgage proceeds would be immediately applied to your regular mortgage. Here is a more in-depth explanation of how reverse mortgages work.

The main pros and cons of reverse mortgages are:

Pros of Reverse Mortgage

    One big advantage to reverse mortgages is that credit checks are minimal. Since you don't have to make loan payments during your lifetime, your credit score or monthly income are mostly irrelevant. However, new laws require lenders to set aside a certain amount of the loan funds if it looks like you won't be able to afford property taxes, home repairs or mortgage insurance premiums.

    The value of your home may have risen dramatically since you bought it. Reverse mortgages give you access to this profit while allowing you to remain in your home.

    If you have limited income, a reverse mortgage can provide you with greater self-sufficiency and comfort.

Cons of Reverse Mortgage

    You (or your spouse, if he or she also signed the loan) must be living in your home to keep the reverse mortgage in place. You can't be absent for longer than 12 months, even if you have to go into a long-term care facility or move away to care for a family member. Longer absences result in the termination of the loan, and any money you received must be repaid immediately, with interest.

    You must commit to maintaining your home and to keeping property tax and insurance payments up to date. Before the loan closes, the house is inspected, and you must sign a binding agreement to complete all recommended repairs by a specified date. The bank inspects your home to certify that you have completed these repairs as agreed.

    A reverse mortgage usually makes it impossible to leave your house to your children. When all borrowers have passed away, the reverse mortgage must be repaid in full. In most cases, this requires the sale of the house. The only way to avoid this is if your heirs have enough personal wealth to pay off the reverse mortgage without needing to sell the house.

read more: http://www.huffingtonpost.com/simple-thrifty-living/what-is-a-reverse-mortgag_b_7200038.html

Terms of reverse mortgages continue to be misunderstood

A new government report shows many seniors are taking out reverse mortgages on their homes without fully understanding the ramifications, leading to foreclosures among borrowers and a tangle of problems for heirs after the borrower dies.

“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which last week released a report highlighting the top complaints the agency received about reverse mortgages over the last three years.

A reverse mortgage is a type of loan that allows homeowners age 62 and older to tap a portion of the equity in their homes. The money typically is paid out in a lump sum or in regular fixed payments, with fees and interest added to the balance each month. Unlike a home equity loan, the money does not have to be repaid until the borrower dies, moves out or sells the home.

The loans can be a life line for house-rich, cash-poor seniors struggling with daily living expenses. Reverse mortgages also have been used to help retirees improve their lifestyles, allowing them to buy the summer home they had always dreamed about, for example.

But problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by.

The Consumer Financial Protection Bureau cited a 2010 Federal Reserve report concluding that in the 55-to-64 age group, 41 percent had no retirement savings. Even among those who had a nest egg, the average balance was only $103,200, the report said. Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work.

“Many consumers struggle with understanding how quickly their loan balance will go up and their home equity will fall,” the report said. As a result, many borrowers who wanted to refinance their loans were frustrated because there wasn’t enough remaining equity in their homes.

One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report.

Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house.

Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death.

Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.

Another common complaint involved the shock of having to sell a home or face foreclosure when a spouse died because the surviving spouse’s name was not on the reverse mortgage. Some couples were advised to take a reverse mortgage in the older spouse’s name to qualify for a bigger loan.

“Some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date,” the report said.

To help more seniors stay in their homes, the U.S. Department of Housing and Urban Development — which insures most reverse mortgages through its Home Equity Conversion Mortgage program — implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status.

The rule only applies to reverse mortgages originated through HUD’s program after Aug. 4, 2014.

see more: http://www.detroitnews.com/story/business/personal-finance/2015/03/09/terms-reverse-mortgages-continue-misunderstood/24619519/

Weigh pros and cons of reverse mortgages for your situation

Reverse mortgages are in the headlines again — and again, sometimes for the wrong reasons.

The attention being paid to the loan product, which lets seniors 62 and older borrow against the equity in their homes, points to its anticipated popularity, especially given the demographics of baby boomers. Some 41 percent of Americans ages 55 to 64 have no retirement savings account, and many do not have pensions. What they do have are homes; almost three-quarters of this group are homeowners, according to government figures.

A report issued earlier this month by the Consumer Financial Protection Bureau looked at 1,200 complaints on reverse mortgages submitted to the agency in a three-year span. Topping the list were complaints related to a borrower's inability to make payments, refinance the loans or change the loan terms. There also were issues regarding communication.

One concern noted in the report, that surviving spouses may lose the homes after a borrower's death, may ease going forward. In a policy shift, spouses not named on the most common reverse mortgage, a federally insured Home Equity Conversion Mortgage, made after Aug. 4, 2014, may be eligible to stay in a house after the death of a spouse who was the official borrower.

The bureau's report was followed by the agency filing a lawsuit against reverse mortgage provider All Financial Services, based in Maryland, for allegedly falsely advertising its product as linked to the federal government and advertising that no monthly payments were required "whatsoever" so long as the consumer and spouse live in the house. In fact, borrowers still need to pay property taxes and insurance. Interest and fees on the loan accrue, and the total balance is due when the borrower dies, sells the home or permanently moves from it.

read more:  http://www.chicagotribune.com/classified/realestate/ct-mre-0222-podmolik-homefront-20150219-column.html