By Shannon Wygant, Certified Senior Advisor (CSA) and owner of the Waterford and Walled Lake, Michigan franchises of Home Instead Senior Care.
Q. I’ve heard a lot about reverse mortgages and wonder if this could be an option for us. We’re an 83-year-old couple, living on fixed incomes, who are running short on cash. However our home is paid for. How do reverse mortgages work and what should we know about them? What other ways can we get assistance to remain at home?
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash, according to the U.S. Department of Housing and Urban Development (HUD).
The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until borrowers no longer use the home as their principal residence. The loan and interest are paid off when the property is sold.To be eligible for a HUD reverse mortgage, HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older, who owns a home outright or has a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan. The owner also must live in the home.You can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
Reverse mortgage fees may be high, although the fees are rolled into the loan and not paid upfront. It’s important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially owns your home. Discuss your options with an attorney. You also can receive free information about reverse mortgages by calling AARP at 1-800-209-8085. Many seniors use the extra cash from a reverse mortgage to supplement social security, meet unexpected medical expenses, make home improvements and more, such as hiring at-home help to remain independent. Another option for help at home is Home Instead Senior Care, a company that hires CAREGivers who can assist you with non-medical tasks such as meal preparation, light housekeeping, medication reminders, transportation, errands and shopping.
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Editor’s Note: This is a weekly series that will be emailed every other Monday to regional press affiliates to help promote health, welfare, and advocacy for our senior population. Bert Copple, Director of Community Relations, can be reached via email at dcrcommerce@inspireseniors.com, or via cell at 248-953-9916.
You are correct that closing costs on a reverse mortgage are higher than a convention “forward” mortgage (essentially because of the upfront MIP) but the mortgage company has no more control of one’s home than with a forward loan.
As with a conventional mortgage when you sell the property, the mortgage loan is paid with the proceeds from the funds generated from the sale and the owner retains the balance for himself (or heirs).
The comment that “the mortgage company essentially owns your home” is unfounded and does a disservice to your readers who are trying to understand reverse mortgages.
Mr. Meyers:
I’m not sure if you write reverse mortgages, but as we best understand it, the bank does in fact take over ownership of the home. This is not a bad thing, afterall the purpose of doing a reverse mortgage is to use the equity so that the senior can enjoy the golden years of their life, but as they spend their equity, they are relinquishing their ownership of the home once the are longer living within the home.
This post was by no means an exhaustive look into the reverse mortage industry. There are many resources out there, including the post that will soon follow of th top ten questions about reverse mortages.
The artuicle was to show that reverse mortages are a viable means to accessing cash so that seniors can continue living in their home opposed to a assisted or independent living facility.
Thanks for the feedback!
Bert,
I saw your name on Googling Michigan Reverse web sites and I appreciate your efforts in educating of Seniors. I am a very involved representing a major investor of Reverse Mortgages in the Midwest area and have originated mortgages for over 30 years.
The sensitive word “ownership” often comes up in the discussion of reverse mortgagees and I must correct your comment on this. Ownership means who is in title and who has the equity interest in the property. The lender on all mortgages be it reverse or regular payment mortgages only has lien to the extent of amount the borrower owes with interest. The borrower with title, has the ownership and the equity interest less what is owed against the title. The senior group of borrowers entitled to the reverse mortgage must be reassured that they have and will always remain in title and are entitled to any remaining equity as long as they live in the property. If they pass away, the estate has a period of time with extensions to that period, to satisfy the lien through sale or refinance owing on the reverse mortgage. If the original borrower decides to sell, the lien as in any mortgage will at the time of sale, need to be satisfied or paid off with all interest owing.
Please let your readers know that ownership interest stays with the borrower as in any mortgage program.
Thank you,
Harvey Faust
Sun West Mortgage
Midwest Regional Reverse Mortgage Specialist
Harvey:
Thanks so much for the clarification! This was a good post and it offered some great insight on the ownership issue of reverse mortgages.
I apprecaite your feedback.
Bert Copple