Archive for the ‘Reverse Mortgage’ Category

What You Need to Know About Reverse Mortgages

Sunday, March 15th, 2020
About reverse mortgages
Before you sign any papers, it’s very important that you understand everything you need to know about Reverse Mortgages.

Seniors, are you having trouble getting through retirement? Have you’ve heard about Reverse Mortgages and how other seniors have pulled the equity out of their homes to help them get through retirement? Does all this Reverse Mortgage information confuse you?

It’s important to understand what a Reverse Mortgage is as well as the benefits and risks of this type of loan before you sign any papers. Banks offer information on these types of loans, but you may find attending a workshop to be more helpful.

What Is It?

Investopedia.com defines a reverse mortgage as “a loan. A homeowner who is 62 or older and has considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit. Unlike a forward mortgage – the type used to buy a home – a reverse mortgage doesn’t require the homeowner to make any loan payments.

”Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home. Federal regulations require lenders to structure the transaction so the loan amount doesn’t exceed the home’s value and the borrower or borrower’s estate won’t be held responsible for paying the difference if the loan balance does become larger than the home’s value. One way this could happen is through a drop in the home’s market value; another is if the borrower lives a long time.”

How Do Reverse Mortgages Work?

When you take out a reverse mortgage loan, you basically pull out the equity you have in your home to help you through retirement. You can choose to take out that equity in one of two ways:

  • One lump sum
  • Monthly payments

The loan does not need to be paid back until you either sell your home or stop living in it.

Your homeowner’s insurance needs to be maintained and the taxes on your home paid.

If you choose to, you can make payments on your reverse mortgage. But these payments are not required.

What Benefits Does a Reverse Mortgage Offer Seniors?

Most people who are over the age of 62 have half of their net worth tied up in their homes. A Reverse Mortgage allows you to cash out your equity when you need it while still living in your home. This is the most appealing feature of this type of loan. With a Reverse Mortgage, it’s quite possible to live comfortably in retirement.

Are There Risks Involved?

This all sounds great, but are there risks involved? Yes. A Reverse Mortgage puts your home at risk because it limits the amount of money you can pass on to your children when you die. How?

  1. When you die and your children inherit your home, they must either pay off the mortgage themselves or sell the property to pay off the loan.
  2. If you can no longer live independently in your home and must move into a nursing home, the reverse mortgage must be paid off. This usually means you must sell your home.
  3. The interest rates on a Reverse Mortgage loan may be high depending on your credit.
  4. If you put your home up as collateral and then borrow money against your home, you risk losing it.

Also, be aware of other possibly risky scenarios. For example, if you sign the reverse mortgage and go into a nursing home while your spouse lives in the home, the terms state the loan must be paid back. This means your spouse may no longer have a home to live in.

Risks can be reduced by limiting the amount you borrow on the loan. If the loan is smaller than the total equity, you can sell the home and still have enough to buy a smaller place live.

And since the risks could involve and affect your children greatly, talk with them when you take out a reverse mortgage.

Knowing About Reverse Mortgages

Maintaining your independence and solving a cash flow problem if your retirement benefits don’t cover your expenses is ideal. So carefully review all available information as well as the terms on a Reverse Mortgage. And once you understand the benefits as well as the risks of Reverse Mortgages, you can decide whether or not it’s good for you.

Many government agencies caution seniors to review the terms and consider all their options before taking out a Reverse Mortgage.

Are you confused about Reverse Mortgages? Contact me, Charles D’Alessandroyour Brooklyn Real Estate Agent with Fillmore Real Estate with your questions. I can help. Call (718) 253-9600 ext. 206 or email [email protected] today.


Charles D'Alessandro

Charles D’Alessandro
Your Brooklyn Real Estate Agent
718-253-9600 ext. 206

Are Reverse Mortgages Really All They’re Cracked Up to Be?

Saturday, September 15th, 2018

Reverse mortgages

There are two sides to reverse mortgages. Educate yourself well on both sides before choosing to take out a reverse mortgage when you retire.

Like every story, reverse mortgages have two sides, good and bad, pros and cons, benefits and disadvantages.

What are Reverse Mortgages?

You’ve probably heard of reverse mortgages, but do you really know what it is?

According to reversemortgage.org, “A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash.

The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction on how reverse mortgage proceeds can be used.

The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.

The borrower is not required to pay back the loan until the home is sold or otherwise vacated.  As long as the borrower lives in the home, they aren’t required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance, and homeowners association dues (if applicable).”

Why are Reverse Mortgages a Bad Idea?

Let’s address why reverse mortgages are a bad idea, or what about reverse mortgages some say is a bad idea. Here’s what contributor Marc Lichtenfeld had to say about reverse mortgages for  businessinsider.com in April 2018.

“Taking out a reverse mortgage is almost never a good idea — here’s why, basically:

  • Reverse mortgages are loans available to people over 62 who would like to borrow against the value of their homes.
  • They are often exorbitantly expensive — requiring additional premiums and fees.
  • Instead of interest compounding on a lower number every month, like a regular mortgage, reverse mortgages compound on a higher number because of the additional premiums.
  • In the case of death, your estate will have to pay off the remaining balance — and if you move out of the house, you have a year to close the loan.

In-Depth Reasons Why Reverse Mortgages are a Bad Idea

If a financial product needs a celebrity to convince you it’s a good idea, that’s a pretty good indication that it’s not.

Exorbitant Fees, Costs, and Mortgage Insurance Premiums

Reverse mortgages are exorbitantly expensive loans. Like a regular mortgage, you pay various fees and closing costs that total thousands of dollars. But unlike a regular mortgage, you pay a mortgage insurance premium.

You can avoid paying for mortgage insurance with a regular loan, provided your down payment is 20 percent or more of the purchase price. But since you don’t make a down payment on a reverse mortgage, you pay the premium on mortgage insurance.

The premium equals 0.5 percent if you take out a loan equal to 60 percent or less of the appraised value of the home. The premium jumps all the way up to an exorbitant 2.5 percent if the loan totals more than 60 percent of the home’s value.

For example, if your home appraises for $450,000 and you take out a $300,000 reverse mortgage, it will cost you an additional $7,500 on top of all of the other closing costs.

You’ll also get charged around $30 to $35 per month as a service fee. The total is charged based on your life expectancy. If you are expected to live another 10 years (120 months), you’ll be charged another $3,600 to $4,200. That figure is deducted from the amount you receive.

Most of the fees and expenses can be rolled into the loan, which means they compound over time.

The following distinction between a regular mortgage and reverse mortgage is important to note. When you make payments on a regular mortgage each month, you’re paying down interest and principal, reducing the amount you owe. Because you never pay down your reverse mortgage, the figure compounds month after month.

A regular mortgage compounds on a lower figure each month. A reverse mortgage compounds on a higher number.

When You Pass Away, Your Estate Gets Stuck

If you pass away, your estate pays back the loan with the proceeds from the sale of your house. If an heir is living or wants to live in the house, they’ll have to pay back the reverse mortgage or sell the home.

When You Choose to Move Out of Your Home

If you decide to move out of the home, you have a year to close the loan.

And what if you move into a nursing home? You’ll probably need the equity in your home to pay for the cost of living there. In 2016, the average cost of a nursing home was $81,128 per year for a semi-private room. If you owe a lender a substantial piece of the equity in your home, there won’t be much left to pay for living in a nursing home. Unless your kids step up to pay for it since you can’t, you’re going to a Medicaid facility. And having to live in a Medicaid facility isn’t the least bit ideal.

After All That …

Because of the high costs of reverse mortgages, it’s safe to say they aren’t worth it for most people. You’re better off selling your home and moving into a cheaper place. Keep whatever equity you get from your home and pocket it. This is far better than owing it to a reverse mortgage lender.”

Do you have questions about reverse mortgages? Contact Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. Call (718) 253-9600 ext.206 or email [email protected] with your questions today.


Brooklyn Real Estate Agent

 Charles D’Alessandro

Your Brooklyn Real Estate Agent

718-253-9600 ext. 206

[email protected]

The 2 Sides Of A Reverse Mortgage

Friday, May 15th, 2015

Reverse mortgage

A reverse mortgage has 2 sides: Benefits and Drawbacks

Like every story, a reverse mortgage has two sides, good and bad, pros and cons, benefits and disadvantages.

You’ve probably heard of a reverse mortgage, but do you really know what it is? A reverse mortgage is a Home Equity Conversion Mortgage, a (HECM), is a type of home loan for senior homeowners, 62 years or older, that uses the home’s equity as collateral. Cash payments are paid to a senior homeowner based on their home’s equity. A reverse mortgage provides cash payments to a senior homeowner by allowing them to convert part of the equity in their home into cash. Generally, the loan is not due until the last surviving homeowner dies, sells or moves out of the home. The homeowner is responsible for property taxes, homeowners insurance, upkeep, and any relevant condominium fees.

When the last surviving homeowner dies, sells or moves out of the home, the estate must pay off the reverse mortgage or sell the home to pay back the loan balance. The estate has roughly 6 months to do so. If there is any remaining equity, the estate inherits the remainder. If the home sells for less than the balance of the reverse mortgage, the estate is not personally liable.

The idea for a reverse mortgage came about because retired senior homeowners with limited incomes needed a way to pay for healthcare and monthly living expenses. Thus, the reverse mortgage was created and without restriction on how it would be used by the senior homeowner. It allows senior homeowners to use the equity they have built in their homes to help them pay for health care costs and their basic monthly living expenses or take a vacation if they so choose.

A reverse mortgage differs from a traditional mortgage because the lender pays the homeowner cash rather than homeowner making monthly mortgage payments.

A reverse mortgage can be a good way for retired homeowners to increase their spending power and financial security in retirement. However, there are 2 sides to reverse mortgages, benefits, and drawbacks.

Benefits of a Reverse Mortgage:

  • You can live in your home for as long as you want without a monthly mortgage payment and improve your immediate financial situation.
  • You can tailor and utilize the reverse mortgage as a financial planning tool.
  • Your home cannot be taken from you for non-payment as in a home equity loan. You do not make payments on the loan until you permanently leave the home.
  • You will never owe more than the value of your home at the time the loan is paid off. This is a great advantage if you secure a reverse mortgage and then the price of your home drops.
  • Whether you receive the money from a reverse mortgage as fixed income or in a lump sum, the money is typically tax-free.
  • You may use the money from a reverse mortgage however you see fit.
  • You can receive the money from a reverse mortgage in one lump sum, as an annuity, a credit line or even as a combination of these.
  • You maintain homeownership of your home and are able to live in your home.
  • You can rest assured that you have a place to live for as long as you want when you secure a reverse mortgage.
  • A reverse mortgage is federally insured.
  • A reverse mortgage can increase your spending power and financial security in many ways.

Drawbacks of a Reverse Mortgage:

  • Upfront fees on a reverse mortgage are high. (Learn more about reverse mortgage fees here: Reverse mortgage rates and fees)
  • Even though you make no monthly payments on a reverse mortgage, the amount of interest you owe and the amount you must eventually pay back accumulates over time.
  • You may have built a lot of equity in your home, but a reverse mortgage might allow you to use only some of it. The amount of your reverse mortgage loan is determined by the appraised value of your home, what you still owe on your home, your age and what the current interest rates happen to be.
  • A reverse mortgage is the opposite of a traditional home loan. It is a mortgage in reverse. You accumulate the loan over time and pay it all back when you are no longer living in your home. This can be difficult to grasp.

The benefits of a reverse mortgage clearly outnumber the drawbacks, but a reverse mortgage is not for everyone. Here are three things to consider before securing a reverse mortgage:

  • If you are eligible for low-income assistance, securing a reverse mortgage could disqualify you from Federal or State government assistance.
  • If you are planning to move in the near future, a reverse mortgage is not a good idea since the loan is due when “the last surviving homeowner dies, sells or moves out of the home.”
  • A reverse mortgage decreases the equity in your home and affects your estate. (See Innovative Uses of a Reverse Mortgage for more information on these options)

Studies have shown that more than 90 percent of those who have secured a reverse mortgage have less stress and the freedom to choose to live the life they want to live. Learn more about the fees associated with a reverse mortgage or instantly estimate your reverse mortgage loan amount with the Reverse Mortgage Calculator.

Brooklyn real estate agent with Fillmore Real Estate, I have been collaborating with and helping my clients buy or sell their Brooklyn homes for over 27 years. Do you have further questions about a reverse mortgage? Contact me, Charles D’Alessandro, at (718) 253-9600 ext 206 or email [email protected]. I know real estate and will be happy to answer any questions you may have. Just ask!

Resources:

http://www.newretirement.com/reverse-mortgage/reverse-mortgage-disadvantages-advantages.aspx?nr_product=revmort&nr_a=LI_BidManager&nr_placement=&nr_medium=display&nr_creative=rmdown_blkwhteleg&nr_size=LREC&nr_campaign=StandardCPMV2&nr_adgroup=Desktop&nr_adtype=STTC&utm_medium=display&utm_source=LI_BidManager&utm_content=rmdown_blkwhteleg

http://www.reversemortgage.org/about.aspx