Is a Reverse Mortgage Right For You?Thursday, September 29, 2011

CredAbility Offers Counseling for Seniors Considering Reverse Mortgages

ATLANTA, GA — Although applications for reverse mortgages are outpacing projections from the Department of Housing and Urban Development, applications in August 2011 were down 18 percent compared to the prior year. (View the full report at http://portal.hud.gov/hudportal/documents/huddoc?id=ol0811.pdf). More troubling are statistics indicating that the number of technical defaults on reverse mortgages is on the rise, as seniors struggle to stretch their monthly budgets and are unable to meet their obligations for taxes and insurance on their homes.

“A reverse mortgage can provide seniors with the needed income to fund home repair projects and cover health care and other expenses, though there are risks and costs involved,” said Sue Hunt, director of housing counseling for CredAbility. “Consumers need to fully understand and carefully consider these before deciding if a reverse mortgage is right for them.”

How do I know if a reverse mortgage is right for me?
If eligible, a reverse mortgage may be right for you if you have a regular need for additional funds to cover basic living expenses; if you live on a fixed income and your only asset is the equity in your home; or if you do not plan to leave your home to children or other beneficiaries.

It is important to remember that once a reverse mortgage is obtained, the homeowner is still responsible for payment of their property taxes and must maintain their homeowners insurance. Failure to do so can result in loan default and, in some cases, foreclosure.

A reverse mortgage can be an expensive way to borrow money and is not the best answer for everyone. Homeowners need to educate themselves and understand all the benefits and risks of a reverse mortgage.

What is a reverse mortgage and who is eligible?
A reverse mortgage is a loan that allows you to convert the equity in your home into tax-free proceeds without having to sell your home, give up the title, or take on a new or additional monthly payment. Instead of making mortgage payments each month, you can receive income in the form of a lump sum, or monthly payments.

To be eligible for most reverse mortgages, you must be 62 years of age or older, have paid off your mortgage or have only a small balance remaining, and your home must be your principle residence.

How is a reverse mortgage different than a conventional mortgage?,br /> With a conventional mortgage, the equity rises and the debt falls as you make regular payments and the value of your home appreciates. When you have a reverse mortgage, the debt rises and equity falls as you take the money out of the home, make no payments, and interest accrues on the amount owed.

How much money can I expect to receive?
The amount you can borrow depends on three things: your age, the appraised value and equity in your home, and the interest rate on the loan at the time of origination. If you are obtaining a FHA Home Equity Conversion Mortgage (HECM), your loan is also subject to the lending limit in your area. In general, homeowners who are older and who have a great deal of equity in their home are able to borrow the most money. AARP has a calculator to help you estimate how much you might receive: http://rmc.ibisreverse.com/rmc_pages/rmc_aarp/aarp_index.aspx.

How are payments made to me?
Borrowers can choose to get their money in a lump sum all at once, as a monthly cash advance, or as a line of credit that allows you to decide when and how much to use. Some borrowers opt for a combination of these payment methods.

How can the money be used?
The proceeds from a reverse mortgage can be used at the borrower’s discretion. While many choose reverse mortgages to provide supplemental income to cover basic living expenses, funds can also be used for home renovations, healthcare expenses, to pay off existing debts, or for major purchases such as automobiles or vacations. It is important to remember that you are still responsible for taxes and insurance on the home and that you set aside money to cover these expenses.

How is the reverse mortgage repaid? Can heirs inherit my home?
No payments need to be made while you occupy the home as your principal residence. The loan is repaid when the homeowner passes away, sells the home, or moves out. The reverse mortgage, which includes the amount borrowed, the accrued interest, the mortgage insurance premiums accrued, service fees, and any other financed fees will be repaid upon the sale of the home and any excess proceeds would go to you or your estate.

Heirs can inherit the home, but must pay off the reverse mortgage within an agreed upon period of time (usually 12 months) after the death of the homeowner.

How can I learn more?
CredAbility has been approved by the U.S. Department of Housing and Urban Development as a national intermediary. It is also one of five national counseling agencies approved by HUD to provide counseling to homeowners who have reverse mortgages, but are struggling with their taxes and insurance. People who need counseling for these issues can reach CredAbility at 888.395.2664 or online at www.CredAbility.org. CredAbility has 21 counselors who provide reverse mortgage counseling and the organization has provided more than nearly 9,000 reverse mortgage counseling sessions this year through August.