| Reverse Mortgages (Home Equity Conversion | | | | counseling agency, or a national counseling agency, |
| Mortgages) have become a popular and well | | | | such as AARP (800-209-8085), National Foundation |
| respected way for seniors to access the equity in | | | | for Credit Counseling (866-698-6322), and Money |
| their homes for many reasons. Some use the equity | | | | Management International (877-908-2227). Counseling |
| for long-term care needs, to pay bills, pay off existing | | | | is required for all reverse mortgages and may be |
| mortgages or debt, pay for prescription drug costs, | | | | conducted face-to-face or by telephone. |
| home improvements, home modifications, or to simply | | | | By law, a counselor must review (i) options, other than |
| be able to enjoy life a little more by traveling and | | | | a reverse mortgage, that are available to the |
| enhancing their retirement cash flow. Many seniors use | | | | prospective borrower, including housing, social services, |
| reverse mortgages to pay high property tax bills, and | | | | health and financial alternatives; (ii) other home equity |
| have even been saved from foreclosure and | | | | conversion options that are or may become available |
| bankruptcy because they applied for a reverse | | | | to the prospective borrower, such as property tax |
| mortgage. | | | | deferral programs; (iii) the financial implications of |
| Other seniors use reverse mortgage proceeds to fund | | | | entering into a reverse mortgage; and, (iv) the tax |
| advanced estate planning techniques. This includes | | | | consequences affecting the prospective borrower's |
| increasing the value of their estate through life | | | | eligibility under state or federal programs and the |
| insurance purchases, planning ahead for future | | | | impact on the estate or his or her heirs. |
| long-term care needs, assisting grandchildren with | | | | TIP: HUD Counselors are not financial planners, and |
| college funding, making charitable donations, and to | | | | should not be giving advice on financial product |
| convert IRA funds to Roth IRA funds, just to name a | | | | purchases. Talk to a trusted advisor about a plan for |
| few. | | | | the reverse mortgage proceeds. |
| Many newspaper, TV, radio and internet articles | | | | How Can the Cash Flow From a Reverse Mortgage |
| circulating in the media give inaccurate and misleading | | | | Keep Mom and Dad at Home Longer? |
| information about reverse mortgages. So called | | | | The cash flow from a reverse mortgage can be used |
| "experts" who are interviewed for quotes often have | | | | for any purpose. In order to keep seniors safe and at |
| no involvement in the mortgage industry and do not | | | | home for longer periods of time, it is recommended |
| understand the federal law that regulates these loans. | | | | that the cash flow be used for home modifications, |
| Each consumer should make it his or her own | | | | repairs, personal emergency response systems, and |
| responsibility to talk with an expert, and educate | | | | in-home care services. |
| themselves on the facts. | | | | Whose Name Remains on The Title to the Home? |
| TIP: As you know, the media attract more viewers, | | | | The seniors' names remain on the title to the home. |
| readers, and listeners when they make a story | | | | The bank is not in the business of taking over title, and |
| exciting, scary, or dramatic. Because reverse | | | | certainly not in the business of owning homes. |
| mortgages are federally regulated loans, there really | | | | Therefore, just as with a traditional mortgage, the |
| isn't anything scary or dramatic about them when you | | | | seniors' name is on the title to the house. |
| know the facts. Be wary of interviews and articles | | | | Can Their Home Be Taken Away from Them? |
| that make reverse mortgages seem like a scam. The | | | | When a senior implements a reverse mortgage, it is |
| Department of Housing and Urban Development has | | | | important to remember that they are responsible for |
| done an excellent job of regulating reverse mortgages, | | | | keeping the home owner's insurance in force, paying |
| and they are designed to help seniors, not hurt them. | | | | annual property taxes, and for general upkeep of the |
| Some good websites for more information are - be | | | | home. Unless one of these criteria is not met, their |
| sure to download "Money from Home" for free. The | | | | home can never be taken away from them. |
| National Reverse Mortgage Lenders Association has | | | | Will Heirs Be Responsible for Repaying This Loan? |
| great consumer booklets- . | | | | No, a reverse mortgage is a "non-recourse" loan. This |
| The National Council on Aging recently did a study that | | | | means that the lender is only entitled to loan |
| concluded that reverse mortgages are good sources | | | | repayment via the sale of the home for fair market |
| of funds for long-term care planning and long-term | | | | value. If there is any remaining equity over and above |
| care needs. You can download the entire study by | | | | the final loan amount, the heirs receive that remaining |
| visiting | | | | equity. If the home sells for LESS than the final loan |
| Although there are closing costs associated with these | | | | amount, the federal government steps in and pays the |
| loans, most, if not all of them are factored in to the | | | | lender the difference. Heirs' assets are never at risk. |
| loan, and are not out-of-pocket expenses for the | | | | When Does the Loan Come Due? |
| senior. Whether or not a reverse mortgage is right for | | | | The loan comes due when the last remaining |
| a senior depends on their specific situation, case | | | | homeowner leaves the home permanently. This |
| design, and cash flow or estate planning needs. | | | | means that the loan will come due when the last |
| What is a Reverse Mortgage? | | | | homeowner passes away, sells the home, or leaves |
| A reverse mortgage enables older homeowners (62+) | | | | permanently (12 months or more). |
| to convert part of the equity in their homes into | | | | Do Reverse Mortgages Affect Medicare or Social |
| tax-free income without having to sell the home, give | | | | Security? |
| up title, or take on a new monthly mortgage payment. | | | | Reverse Mortgages do not affect Medicare (including |
| The reverse mortgage is aptly named because the | | | | Medicare Part D) or social security income. However, |
| payment stream is "reversed." Instead of making | | | | the proceeds from a reverse mortgage CAN affect |
| monthly payments to a lender, as with a regular | | | | local income based programs in your area, and the big |
| mortgage, a lender makes payments to you. | | | | one- Medicaid. (note there is a huge difference |
| Who Qualifies for a Reverse Mortgage? | | | | between MediCARE and MediCAID.) Medicaid eligibility |
| Eligible property types include single-family homes, 2-4 | | | | can be preserved with the right plan even after taking |
| unit properties, manufactured homes (built after June | | | | out a reverse mortgage. Talk to a professional about |
| 1976), condominiums, and townhouses. In general, | | | | the options. |
| co-ops are not allowed. Only the Financial Freedom | | | | Can Mom and Dad Still Leave Their Home To Their |
| "Cash Account" program is available on co-ops in New | | | | Children? |
| York City. As long as you own a home, are at least | | | | Yes, with proper planning, they certainly can. One way |
| 62, and have enough equity in your home, you can get | | | | to make sure that heirs receive the value of the home |
| a reverse mortgage. There are no special income, | | | | is for the seniors to purchase life insurance using the |
| credit or medical requirements. | | | | proceeds from the reverse mortgage. Some seniors |
| How Are Seniors Protected? | | | | end up doubling or tripling the value of their estate for |
| Counseling is one of the most important consumer | | | | their heirs because they use the reverse mortgage |
| protections built into the program. It requires an | | | | proceeds to pay the life insurance premiums. This way |
| independent third-party to make sure your family | | | | they never have to touch a penny of their savings, |
| member understands the program, and review | | | | investments, or current income to increase the value |
| alternative options, before they apply for a reverse | | | | of their own estate. This also helps the heirs, because |
| mortgage. | | | | inheritance passed on through life insurance |
| You can seek counseling from a local HUD-approved | | | | (beneficiary designation) bypasses probate, and taxes! |