All About Reverse Mortgages Louisville KY

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Welcome to the beginning of your new, financially independent life. Simply by picking up this article, you’ve taken a proactive step to ensure a safe, stress-free retirement by using the equity in your home today. Congratulations! You’ve probably heard a lot about reverse mortgages lately, as they’re quickly becoming a popular, safe, simple way to supplement seniors’ retirement income. In this article, you can see the basics of modern reverse mortgages and get a feel for whether these loans are right for you or someone you love. By the end of this article, you should be able to explain the rudiments of reverse mortgages to anyone like a pro.

Understanding Reverse Mortgages
People tend to shy away from the very idea of reverse mortgages, in part because of their former bad rap, and in part because of all the scary terminology. If you’re one of millions of people who are unfamiliar with real estate terms, when someone starts spouting off about how you can “utilize the equity in your home on deferred payments with a conversion mortgage,” chances are pretty good you’re going to tune it out. In fact, that’s why we wrote this article: to give seniors and their families facts and tips about reverse mortgages in language that’s as approachable as a big-eyed puppy (unless you’re a cat person, then just think of it as a little fluffy kitten). We want you to fully understand the benefits and disadvantages of getting a reverse mortgage. We want you to walk into that loan originator’s office knowing exactly what you want. And most importantly, we want you to feel good about whatever decision you make for your financial future.

Checking out how it works
Reverse mortgages pay you to continue living in your home. You can think of your home as the Bank of You: You’re borrowing money that you would have earned had you sold your house. You can then use the money for whatever you want. Anything your heart desires (and your wallet can handle) is yours for the taking, whether it’s a vacation in Switzerland, moving your master bedroom to the first floor, or sending yourself to college! The concept is kind of abstract if you’ve been paying a lender for the past 30 years or so, and it may be difficult to grasp at first. Take a look at the quick reference points below. Once you get the gist of it, you can educate your friends and family about reverse mortgages. Next time you’re at a cocktail party, holiday dinner, social lunch, or any time reverse mortgages come up in conversation, you can dazzle everyone with your knowledge. Here’s a quick rundown:

You’re a homeowner who owes little or nothing on your home. You decide you need more money to live the lifestyle you want, but your biggest asset is your home and you certainly don’t want to sell it to get the money you need.

A reverse mortgage lender figures out how much it can lend you based on your home value, your age, and interest rates, and loans you some percentage of the money you would have gotten if you’d decided to sell your home.

You still own your home and continue to live in it, but now you’re getting payments from the lender, so your cash flow problem is solved.

You pay the loan back (with interest) only when you don’t live in the house full time anymore, usually due to moving out or death.

You never owe more than your home is worth, no matter how much you’ve accumulated in debt.

You keep any leftover equity after the sale of the house; if you owe the lender $67,000 and your home sells for $200,000, you put the difference in your pocket and walk away smiling. A reverse mortgage is sometimes called a deferred payment loan, and for a very good reason. Instead of paying off the home loan as you borrow money, the payments are put off (deferred). This is why reverse mortgages can be such a good choice for seniors; when you’re on a fixed income or living off of your savings, it can help to have some extra cash in hand to supplement. Because payment is deferred, you are spending the equity in your home, rather than earning it (as you would with a traditional forward mortgage). Since equity is an intangible value, you never feel the effects of the equity going down, but you sure feel the money flowing steadily into your checking account!

Being over the hill pays off
There is a lot of ageism in society today, especially from employers retailers. Even Hollywood starlets have a hard time finding work at a certain age. After a while you may start to think that the only advantage to old age is the 10-percent-off discount on Tuesdays at the local Bar & Grille. But reverse mortgages operate for seniors and seniors only — whippersnappers need not apply. If you are a homeowner age 62 or older, you will probably qualify for a reverse mortgage. There are no credit checks, and no income requirements. Even better, the older you are, the more money you can usually get from your reverse mortgage. That’s because the reverse mortgage lenders (big companies like the department of Housing and Urban Development, Fannie Mae, and Financial Freedom) are playing the odds. If you’re 86, chances are good that they won’t have to service your loan for very long — you may need to move to assisted living or pass away within only a few years, thus ending the loan. A 62-year-old, by contrast, probably has about 20 good years before the lender even needs to think about ending the loan. When has your age ever worked to your advantage like this?

Common misconceptions
Seniors often tell us that they were considering a reverse mortgage until a friend or relative said something like, “Reverse mortgage?! Don’t you dare! They’ll take your house! Stay away!” We’d like to say that these fears are completely unfounded; unfortunately, they stem from a very old version of reverse mortgages (which are no longer done) that, in hindsight, weren’t such a hot idea. Today’s reverse mortgages are safe, effective, and definitely in the best interest of the borrower. It’s a whole new generation of loans. Although they were revamped and vastly improved in the past 20 or so years, people still tend to think of them as a poor choice for seniors. We’re here to fix that. Take a look at the misconceptions below, and the truths that follow:

The lender gets your house. This is by far the most widely misunderstood fallacies about reverse mortgages. In fact, you keep ownership of your home. The lender has no rights to your home and can’t foreclose on you as long as you keep up with your taxes and insurance. Part of the confusion about this area stems from the fact that many reverse mortgage borrowers choose to sell their homes to pay off the loan when they move. And it makes perfect sense — what do you need with that house if you’re not living there? But remember, you’re selling to another regular buyer, not the lender.

You’ll have no estate left. This one is sort of up to you. If you own anything when you die, you’ll have an estate left. If you spent all your money on pinball machines and then donated everything else to charity, you won’t. Many seniors are concerned that a reverse mortgage keeps them from leaving anything to their children. The fact is, the way you pay off your loan is up to you and your heirs. Detail about this and show you several options for fulfilling your repayment obligations. It’s also up to you to decide who you want to leave your estate to. Unless you form an emotional bond with your lender and leave your estate to them, your family or whomever you name in your will is the inheritor of your estate. Of course, they need to pay back the loan, but it’s up to them how they carry out that responsibility.

You won’t qualify because of poor credit. If you have bad credit, or even moderate credit, you may have been turned down for a loan in the past. It’s embarrassing, frustrating, and inconvenient. Reverse mortgages work differently: You can never be denied a loan because of bad credit — it’s not even a consideration in your approval. The originator or lender runs a credit report, but it’s only to make sure you don’t owe the government any money (usually in back taxes). If you do, you have to use a portion of your reverse mortgage money to pay back those debts before you can start spending on yourself.

You have to be debt free. While you are required to own a home in order to get a reverse mortgage, you do not have to own it “free and clear.” One of the benefits of a reverse mortgage is that it can help pay off your remaining forward mortgage, leaving you without house payments for what may be the first time in your adult life. Here’s how it works: The lender determines how much it can let you borrow and then deducts the amount you still owe from your available funds. That money pays off the first loan, and then you’re free to do what you wish with the rest of the money.

Only desperate people get reverse mortgages. At one time, this may have been true. However, today’s reverse mortgage borrower is more likely to get a loan out of want, rather than need. In fact, a growing number of people who have no immediate need are taking out these loans because they like the security of having a financial cushion, or are planning for future expenses. Take a look around and ask yourself if you could use several thousand dollars. Who doesn’t? Don’t let an antiquated stigma keep you from getting the money you want or need.

Knowing what it isn’t
A reverse mortgage can be a lot of things: a way to make ends meet, a nice chunk of change for a rainy day, a fabulous dream vacation, or a remodeled kitchen. But there’s one thing it’s definitely not — free money. There’s no free lunch here. While reverse mortgages offer many wonderful benefits, your loan will need to be paid back, just like any other loan (whether it’s due when you move or upon your death). There are fees involved that are explained in more detail in Part II, but they can include payments to the originator, the appraiser, postage fees, flood certificate fees, recording fees . . . the list goes on and on. Of course, these are the same sort of fees you paid for the mortgage that bought you the home you live in now. You also have to pay interest on your loan, which is generally right around the interest rates on traditional mortgages. You only pay interest on what you borrow, so any money that you don’t use from your pool of reverse mortgage funds isn’t charged. People still get the idea, however, that lenders simply hand you checks every month out of the goodness of their hearts. Now, they’re not bad people, but they certainly aren’t looking to give away billions of dollars per year in reverse mortgages. Because it’s not a cheap loan, a reverse mortgage is also not the best way to pay off a small debt.

Would you really want to spend several thousand dollars in fees and closing costs just to pay back a $900 credit card debt? You know that wouldn’t make sense. But what if you owed the IRS $12,000 in back taxes? In most cases, a reverse mortgage is still too costly for this kind of debt. Okay, that’s easy for us to say, and if it looks like the best option then by all means take the first step and call a reverse mortgage counselor. If you’re in a similar situation, you may also contact a financial planner who specializes in seniors’ money. In fact, you can probably ask a reverse mortgage originator to refer you to someone good. They love to hand out referrals. A reverse mortgage is also not a direct value-to-dollar loan. In other words, they aren’t going to lend you the actual value of your home; what they lend is a percentage of that value, based on age, interest rates, and area. For example, a 66-year-old in a high-end county with a $500,000 home may expect to receive around $163,000 with a Home Equity Conversion Mortgage (depending on interest rates). Don’t expect the full value of your home, or you’ll be very disappointed. Before you make plans to spend money you don’t yet have, go online to www.reversemortgage.org and click on the reverse mortgage calculator. This very cool tool gives you an estimate of what you may be able to borrow. Remember, you’re not selling your home for the amount you’re lent — you are simply borrowing equity that you already own. Lastly, a reverse mortgage is not a panacea, or some kind of allencompassing loan that’s right for everyone. Just because you qualify by being a 62-year-old homeowner doesn’t mean you’re an ideal candidate. The next chapter lays out some questions you can ask yourself to find out whether or not a reverse mortgage is right for you, but here are a few of the basics:

Are you at least 62 and own your own home?

Do you plan to be in your home for at least 5 years?

If you’re getting the loan to purchase or pay off something specific, have you looked into other options for financing those expenses?

Are you comfortable with the terms of the loan? The more of these questions you can answer “yes” to, the more ready you are for a reverse mortgage. When you feel you meet all of these suggested criteria, you’re ready to seek out a reverse mortgage counselor.

Choosing a Loan Product
There are two ways to pick a reverse mortgage loan product:

Throw darts at a list of mortgage products and see which one fate chooses for you.

Talk to your counselor and originator and let them lay out your options for you in an easy-to-understand, straightforward manner. We suggest the last one. Besides, you could put an eye out with those darts. Part of the reverse mortgage process involves using your best judgment and the tools at your disposal (the plethora of information your counselor and originator give you) to make an informed and wise decision. No pressure, right? Actually, it can be a pretty easy choice to make once you see what each loan product has to offer and how each fits into with your goals and financial plans. Keep in mind that all loans have the same basic requirements, but they each have their little idiosyncrasies that may make one a clear choice for you.

Home Equity Conversion Mortgage
By far the most prevalent of the three main options, the Home Equity Conversion Mortgage (HECM, sometimes pronounced heckum; look in Chapter 5 for more details) provides the most payment choices, low interest rates, and the added mental security of being insured by the Department of Housing and Urban Development (HUD), a government organization. Take a look at some of the main points of an HECM loan:

The loan is calculated based on the age of the youngest qualified
borrower.

Eligible homes include most single-family, condos, townhouses, and manufactured homes built after 1976 (ask your originator about HUD guidelines and requirements for manufactured homes).

Lending limits (the amount you can borrow, also called the principal) are lower than other options, yet you can often get a higher principal than you would with others because of lower interest rates.

Loans top out at $312,896 in high-home-value areas, $172,632 in lower-home-value areas (based on 2005 county lending limits).

Interest rates can be based on monthly interest adjustments or annual adjustments (you won’t pay anything until
the loan is due, it just accumulates).

Your money is easily accessible and payment options are very flexible. Do these benefits sound like a good fit for you? If so, what the heck-um are you waiting for?

Home Keeper
There are two loans created by Fannie Mae, America’s largest loan funder, but they both have the same basic foundation. Since the Home Keeper and the Home Keeper for Purchase were modeled after the HECM, you may see lots of similarities.There are, however, some quirks that separate these loans from the pack:

Home Keeper for Purchase lets you use a reverse mortgage to help buy a new home.

Loan calculations are based on the combined ages of the qualifying borrowers, so married couples get less than singles.

Eligible homes are single-family homes, condos, homes in planned unit development projects, townhouses, or manufactured homes that meet Fannie Mae requirements.

Lending limits are based on an adjusted property value, which is a national lending limit rather than a county limit.

The national lending limit is $359,650 (based on 2005 lending limits).

Home Keeper often costs less than HECM but you’ll probably receive less money in the long run. Although Fannie Mae’s Home Keeper loans may not bring you as much income as an HECM, their benefits (such as the ability to buy a new house with the reverse mortgage money) may make these the loans for you.

Jumbo Cash Accounts
For the house-rich among you, the Financial Freedom Cash Account is probably your best bet. Although it doesn’t offer the flexibility of the other two major loans, Financial Freedom’s reverse mortgage provides bundles of cash that HECM and Home Keeper only dream of.

There’s no maximum lending limit; in theory, you could get a cash account reverse mortgage on a $20 million mansion and expect to receive a pretty hefty amount.

Designed for homes valued at $359,651 or above (but is best when your home is worth at least $700,000).

Almost all homes will qualify, including some co-ops.

Interest rates and fees are usually higher than other loans.

There are three types of Cash Accounts — each with different costs involved — that may generate different available funds for you. If reverse mortgages aren’t for everyone, then the Cash Account is for even fewer — rates and fees are higher, and there are some restrictions to the ways you can withdraw your money. However, if you own a high-priced home the tradeoff is probably worth it. Consult your counselor and financial planner about your Cash Account choices.

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For Dummies is a registered trademark of Wiley Publishing, Inc. in the United States and other countries. Used here by license.

Heleringer Mortgage Company

502-412-6162
1945 Alfresco Pl
Louisville, KY
www.webeatthebanks.net