According to a recent AARP study 31.6 percent of seniors have experienced a substantial decline in home values in the past three years, and a fourth have exhausted their personal savings. Overall, more than half of those surveyed age 50+ were not too or not at all confident that they will have enough money to live comfortably throughout their retirement years.  One-third of respondents also mentioned that delaying retirement was an option they were considering while two out of five decided that they would likely work part-time during their retirement years. It’s unfortunate that many individuals in these situations consider working or exhausting their personal savings because they are either unaware that a reverse mortgage could help them or they think that the fees are too high to truly consider it an option. However if individuals considering a reverse mortgage compare those fees to costs associated with the alternatives they may find that it’s all relative. Rather than depleting personal savings or retirement accounts they could have tapped into the equity in their home receiving tax-free funds to cover their expenses.

The two most significant closing costs can be:
1. FHA mortgage insurance premium (MIP)
Cost: The initial insurance premium is 2% of the home’s value for the HECM Standard option, and just .01% for the HECM Saver option.  Both have an annual MIP that is 1.25% of the mortgage balance.
What is it?: It provides two guarantees: the estate will not be personally liable if the payoff balance exceeds the home’s value (“upside-down”), the FHA will pay out loan proceeds if the lender cannot.
2. Origination Fee
Cost: Maximum of $6,000. The maximum fee set by law is 2% of the first $200,000 of property value and 1% of $200,000 to $400,000 of value up to the max available fee.
What is it?: The origination fee is the lender’s fee.

 There is a vast amount of information available on reverse mortgages. When making a decision as big as this one, it is no wonder that many people do their homework. Researching reverse mortgages is good preparation for a required HECM counseling appointment.  FHA funds housing counseling agencies nationwide to provide borrowers with information on reverse mortgages through face-to-face or telephone sessions.

HECM counseling covers a range of topics that could affect your decision on whether or not a reverse mortgage is for you. Counseling sessions include discussions on how a reverse mortgage can impact your eligibility for federal and state programs, income tax consequences, impacts on your estate, what types of payments you will be making to other parties and most notably; the other options available to you. 

The most important thing that a HUD approved counselor can provide you with is unbiased information on whether or not a reverse mortgage is the right decision for you. The whole purpose of counseling is to educate and empower you in making the correct decision for your financial situation.  To find a HECM counselor near you, visit the FHA HECM Roster or call (800) 569-4287.  

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

There is often confusion about what property types qualify for a Reverse Mortgage. If you are considering a Reverse Mortgage, the first step would be to determine whether or not your property is eligible. Property types that qualify for an FHA insured Reverse Mortgage include single family residences, 1 to 4 unit homes, approved condominiums or townhomes, and double or  triple wide manufactured homes that were built after 1976 and sit permanently affixed to an FHA approved foundation.

Another very important aspect to understand when considering whether a property qualifies for a Reverse Mortgage is that it must be owner occupied. Second homes, vacations homes, and rental homes are all ineligible. The only instance in which a rental home would be suitable for a Reverse Mortgage is in the case of a multi unit home, with the owner occupying one of the units.

Why does the property type matter so much? Well, these guidelines are set by the Federal Housing Administration (FHA), which insures Home Equity Conversion Mortgage (HECM). This means that all property types must meet FHA property standards and flood requirements in order to be eligible.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

If you’ve been turned down for a traditional home equity line of credit (HELOC), you may still be able to get the money you need by tapping into your home’s equity using a reverse mortgage.  While a HELOC may not be an option for you during these tight credit times, if you’re a homeowner aged 62 or over with sufficient equity in your home, it’s relatively easy to qualify for a reverse mortgage. 

Many reverse mortgage homeowners have turned their home equity into tax-free cash to help meet their needs and satisfy their wants.  There are several benefits a homeowner can take advantage of with a reverse mortgage, such as:

Eliminate Monthly Mortgage Payments

A reverse mortgage loan can eliminate your monthly mortgage loan payment and typically does not require loan payments until the homeowner moves out of the home for 12 consecutive months or passes away.  (Like all homeowners, you still are required to pay your real estate taxes, insurance and meet any other loan obligations.) By comparison, a HELOC must be repaid in monthly payments.

Income & Credit Requirements

Eligibility requirements for a reverse mortgage generally do not include a minimum income or credit score. By comparison, a HELOC requires stable income and a solid credit score.

Amount You Can Borrow

The amount you can borrow depends primarily on your age, the current interest rate, and the appraised value of your home, sales price or FHA’s mortgage limits, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow. Be sure to review our section on  reverse mortgage pros and cons in order to make a more fully educated decision.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

 Within less than a year both Bank of America and now Wells Fargo have exited reverse mortgage market.  The reasons for the departures may have more to do with infrastructure set-ups, being able to achieve profitability, and getting in compliance with changing regulations from the Department of Housing and Urban Development (HUD) than with the product itself. In the past reverse mortgages received heavy criticism for high fees and aggressive sales tactics which may have pushed some seniors into opting for a reverse mortgage when they otherwise may not have.  The aura surrounding reverse mortgages has changed quite a bit as heavy regulation has been introduced along with the fact that social security, private pensions, and 401K’s are not sitting as strong as they have in the past. The bottom line is reverse mortgages are still a good option for seniors to consider in order to achieve  continued solvency.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

Wells Fargo announced yesterday that they are exiting the reverse mortgage business, after more than 20 years of offering reverse mortgages.  While it may not have been the shot heard around the world, it is interesting that Wells Fargo is not alone.  Bank of America announced their exit from the reverse mortgage business in February of this year.  Even more interesting is that both occupied the #1 and #2 slots as the top volume reverse mortgage lenders in the country.

What will their exit mean for consumers?  By all accounts, the industry is still going strong.  A 2011 Harvard Housing Study predicted that the number of senior households will increase 35% by 2020.  With pension plans declining and uncertainty over the future of Social Security, home equity remains a major source of potential funding for retirement needs.

So if the market remains strong, why are top lenders exiting?  Wells Fargo cites unpredictable home values as a major factor in their decision.  Because reverse mortgages are designed to be repaid after the last borrower has either passed away or is no longer living in the home, it can be difficult to predict what the home’s value will be when it comes time for repayment.  Fortunately, one of the pros of reverse mortgage loans is that they are FHA insured.  Lenders are protected from an unanticipated loss in value at the time of sale and borrowers are protected from unanticipated lender insolvency.

In all, it is likely that consumers won’t see much impact.  While none of the four largest banks will offer reverse mortgages, a broad range of alternate lending options remain, including lenders who focus exclusively on reverse mortgage loans.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

It is much easier during your pre-retirement years to correct course if you’re finding that your spending and saving habits are out of whack in supporting you for the rest of your life. One large problem facing retirees is the realization that the budget that was working for their first 10 years of retirement may not cover costs going into their next 10 years. This is largely due to people living longer. Therefore it is all the more important to identify future deficiencies in saving and spending habits early in order to correct financial course and have savings that will enable the homeowner to live comfortably late into the retirement years.
There are a number of web site tools, like AnalyzeNow.com, that are devoted to retirement planning or life-expectancy calculators, like the one at Livingto100.com, which allow the user to enter personal variables. If after reviewing these sites you’ve come to find that you may encounter future money deficiencies there are options you can employ now to evade future financial woe. Some homeowners consider the option of downsizing into a smaller home and converting the equity from the sale of the larger home into cash. However, many homeowners find the prospect of selling and moving into a new home a bit daunting, in which case, a reverse mortgage may be the solution. A reverse mortgage can be utilized to stave off financial problems in the future but the consumer should first arm themselves with the facts before delving headlong into restructuring their mortgage.
Be sure to review your savings, spending habits and investment returns, loop your children into the discussion, and educate yourself on the pros and cons of a reverse mortgage so that you can proceed confidently into considering this option.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

CNN Money gave brief plus and minus analysis of reverse mortgages earlier this month (see video below).

View the CNN Money Help Desk segment.

While the segment was insightful it was not very detailed in its analysis. So below we’ve provided you a more thorough list of reverse mortgage pros and cons.

Pros
• Convert a portion of your home equity into tax-free cashflow without having to sell your home.
• No monthly payments – the loan is paid back when you die or leave the home or another maturity event occurs.
• Use the money any way you see fit: medical bills, home repair, long-term care insurance, entertainment, vacations and more.
• No impact to eligibility for entitlement programs such as Social Security or Medicare.
• Flexibility in payments: you can receive one lump sum payout, regular payments, or a combination of both.
• No credit score and generally no income requirements.
• Use the HECM for purchase program to downsize into a less expensive home as long as it is your principal residence.
• Interest can be lower than traditional mortgages and home equity loans.

Cons
• Fees can be higher than a conventional mortgage due to the insurance costs. The two big costs are FHA mortgage insurance and the origination fee.
• Loan draws from your equity and balance gets larger over time, so the value of the estate/inheritance may decrease over time
• Requires sufficient equity in your home to qualify.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.

A home equity conversion mortgage (HECM) is better known as a reverse mortgage. The HECM name is probably a bit more descriptive in that there is a conversion of the equity in the home, making it accessible to the homeowner. According to Wikipedia equity is the market value of a homeowner’s unencumbered interest in their real property or the difference between the home’s fair market value and the outstanding balance of all liens on the property. The reverse mortgage (HECM) can turn a portion of a home’s equity into regular cash payments for the homeowner. We get the name reverse mortgage from the fact that it works like a traditional mortgage, but in reverse. Rather than making a payment to your lender each month, the lender pays you through advances against your equity. There are eligibility requirements with a notable one being that the youngest homeowner has to be 62 or older in order to qualify. A reverse mortgage can help seniors with limited incomes meet their living expenses without having to sell their home. If you are considering a reverse mortgage be sure to research the eligibility requirements, pros and cons, and how a reverse mortgage works.

The response above is not intended to be anything other than the educated opinion of the author. It should not be relied upon as financial advice.