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==== ====The Truth About Reverse Mortgages ====Reverse Mortgages (Home Equity Conversi...
estate planning needs.What is a Reverse Mortgage?A reverse mortgage enables older homeowners (62+) to convert part of the ...
title, and certainly not in the business of owning homes. Therefore, just as with a traditionalmortgage, the seniors name ...
decreasing the equity in the home and using that equity to pay for care.For more information or to contact the author visi...
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What you need to know about Reverse Mortgages Before you make a decision


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Find out what a reverse mortgage is and what it is not

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What you need to know about Reverse Mortgages Before you make a decision

  1. 1. ==== ====The Truth About Reverse Mortgages ====Reverse Mortgages (Home Equity Conversion Mortgages) have become a popular and wellrespected way for seniors to access the equity in their homes for many reasons. Some use theequity for long-term care needs, to pay bills, pay off existing mortgages or debt, pay forprescription drug costs, home improvements, home modifications, or to simply be able to enjoy lifea little more by traveling and enhancing their retirement cash flow. Many seniors use reversemortgages to pay high property tax bills, and have even been saved from foreclosure andbankruptcy because they applied for a reverse mortgage.Other seniors use reverse mortgage proceeds to fund advanced estate planning techniques. Thisincludes increasing the value of their estate through life insurance purchases, planning ahead forfuture long-term care needs, assisting grandchildren with college funding, making charitabledonations, and to convert IRA funds to Roth IRA funds, just to name a few.Many newspaper, TV, radio and internet articles circulating in the media give inaccurate andmisleading information about reverse mortgages. So called "experts" who are interviewed forquotes often have no involvement in the mortgage industry and do not understand the federal lawthat regulates these loans.Each consumer should make it his or her own responsibility to talk with an expert, and educatethemselves on the facts.TIP: As you know, the media attract more viewers, readers, and listeners when they make a storyexciting, scary, or dramatic. Because reverse mortgages are federally regulated loans, there reallyisnt anything scary or dramatic about them when you know the facts. Be wary of interviews andarticles that make reverse mortgages seem like a scam. The Department of Housing and UrbanDevelopment has done an excellent job of regulating reverse mortgages, and they are designed tohelp seniors, not hurt them.Some good websites for more information are - be sure to download"Money from Home" for free. The National Reverse Mortgage Lenders Association has greatconsumer booklets- .The National Council on Aging recently did a study that concluded that reverse mortgages aregood sources of funds for long-term care planning and long-term care needs. You can downloadthe entire study by visiting http://www.ncoa.orgAlthough there are closing costs associated with these loans, most, if not all of them are factoredin to the loan, and are not out-of-pocket expenses for the senior. Whether or not a reversemortgage is right for a senior depends on their specific situation, case design, and cash flow or
  2. 2. estate planning needs.What is a Reverse Mortgage?A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homesinto tax-free income without having to sell the home, give up title, or take on a new monthlymortgage payment. The reverse mortgage is aptly named because the payment stream is"reversed." Instead of making monthly payments to a lender, as with a regular mortgage, a lendermakes payments to you.Who Qualifies for a Reverse Mortgage?Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (builtafter June 1976), condominiums, and townhouses. In general, co-ops are not allowed. Only theFinancial Freedom "Cash Account" program is available on co-ops in New York City. As long asyou own a home, are at least 62, and have enough equity in your home, you can get a reversemortgage. There are no special income, credit or medical requirements.How Are Seniors Protected?Counseling is one of the most important consumer protections built into the program. It requires anindependent third-party to make sure your family member understands the program, and reviewalternative options, before they apply for a reverse mortgage.You can seek counseling from a local HUD-approved counseling agency, or a national counselingagency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-6322), and Money Management International (877-908-2227). Counseling is required for allreverse mortgages and may be conducted face-to-face or by telephone.By law, a counselor must review (i) options, other than a reverse mortgage, that are available tothe prospective borrower, including housing, social services, health and financial alternatives; (ii)other home equity conversion options that are or may become available to the prospectiveborrower, such as property tax deferral programs; (iii) the financial implications of entering into areverse mortgage; and, (iv) the tax consequences affecting the prospective borrowers eligibilityunder state or federal programs and the impact on the estate or his or her heirs.TIP: HUD Counselors are not financial planners, and should not be giving advice on financialproduct purchases. Talk to a trusted advisor about a plan for the reverse mortgage proceeds.How Can the Cash Flow From a Reverse Mortgage Keep Mom and Dad at Home Longer?The cash flow from a reverse mortgage can be used for any purpose. In order to keep seniors safeand at home for longer periods of time, it is recommended that the cash flow be used for homemodifications, repairs, personal emergency response systems, and in-home care services.Whose Name Remains on The Title to the Home?The seniors names remain on the title to the home. The bank is not in the business of taking over
  3. 3. title, and certainly not in the business of owning homes. Therefore, just as with a traditionalmortgage, the seniors name is on the title to the house.Can Their Home Be Taken Away from Them?When a senior implements a reverse mortgage, it is important to remember that they areresponsible for keeping the home owners insurance in force, paying annual property taxes, andfor general upkeep of the home. Unless one of these criteria is not met, their home can never betaken away from them.Will Heirs Be Responsible for Repaying This Loan?No, a reverse mortgage is a "non-recourse" loan. This means that the lender is only entitled toloan repayment via the sale of the home for fair market value. If there is any remaining equity overand above the final loan amount, the heirs receive that remaining equity. If the home sells forLESS than the final loan amount, the federal government steps in and pays the lender thedifference. Heirs assets are never at risk.When Does the Loan Come Due?The loan comes due when the last remaining homeowner leaves the home permanently. Thismeans that the loan will come due when the last homeowner passes away, sells the home, orleaves permanently (12 months or more).Do Reverse Mortgages Affect Medicare or Social Security?Reverse Mortgages do not affect Medicare (including Medicare Part D) or social security income.However, the proceeds from a reverse mortgage CAN affect local income based programs in yourarea, and the big one- Medicaid. (note there is a huge difference between MediCARE andMediCAID.) Medicaid eligibility can be preserved with the right plan even after taking out a reversemortgage. Talk to a professional, Larry Eastman nmls#378353 (310-677-0291) at GM FundingServices about the options.Can Mom and Dad Still Leave Their Home To Their Children?Yes, with proper planning, they certainly can. One way to make sure that heirs receive the value ofthe home is for the seniors to purchase life insurance using the proceeds from the reversemortgage. Some seniors end up doubling or tripling the value of their estate for their heirs becausethey use the reverse mortgage proceeds to pay the life insurance premiums. This way they neverhave to touch a penny of their savings, investments, or current income to increase the value oftheir own estate. This also helps the heirs, because inheritance passed on through life insurance(beneficiary designation) bypasses probate, and taxes!How Does The Deficit Reduction Act 2005 Effect Home Equity?The Deficit Reduction Act of 2005 requires that individuals with home equity over $500,000($750,000 in some states) use some of that equity to pay for their own care prior to qualifying forMedicaid services. Reverse mortgages have become a very popular and appropriate option for
  4. 4. decreasing the equity in the home and using that equity to pay for care.For more information or to contact the author visit http://www.theltcexpert.comArticle Source: ====The Truth About Reverse Mortgages ====