Reverse Mortgage – Is it a Good Deal for You?

You may have seen ads on tv where some former tv star is selling reverse mortgages as an easy way for seniors to get extra cash by using the equity in their home. Before you grab your phone and call the number on the screen, you should know what you are getting yourself into, whether it is a good idea for you and if someone is trying to scam you.

The Seniors Center has created this guide to help retired people make their best decisions about reverse mortgages.  Make sure to click the links at the bottom of this article for even more information.

What is a Reverse Mortgage?

A reverse mortgage is a type of home equity loan for older homeowners. Unlike a traditional mortgage where you make monthly payments until it is paid off and you end up owning the property free and clear, with a reverse mortgage, you take out a loan on

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Reverse Mortgages can be a blessing for some Seniors, but they can also be a terrible mistake

the equity of your property and the lender pays you. The money you get is usually tax free and you don’t have to pay the money back as long as you live in your home. If you die, sell the home or move out, you, your spouse (unless he/she is on the mortgage), or your estate must repay the loan, which might mean selling the house. The money can be used to pay medical bills, pay down an existing mortgage, for added income or for a costly repair.

Types of Reverse Mortgages

  1. Single-purpose reverse mortgages – Are offered by some state and local governmental agencies and some non-profit organizations and must be used for a specific purpose, such as to pay taxes or for home improvements, as specified by the lender. It is the least expensive option.
  2. Proprietary reverse mortgages – Are backed by the company that offers it. This is a good option if you have a very high appraised value and a small or no mortgage because you may qualify for more funds.
  3. Home Equity Conversion Mortgages (HECMs) – are federally-insured and backed by the U.S. Department of Housing and Urban Development (HUD). They may be used for any purpose.

Proprietary and HECM reverse mortgages are expensive and there are high upfront costs. How much you can borrow will depend on the type of reverse mortgage you choose, your age, the appraised value of your home, current interest rates and a financial assessment of your ability to pay property taxes and homeowner’s insurance (including flood insurance if you are in a flood zone). You must also maintain your property and pay utility bills and HOA dues, if applicable.

You can elect to get a single disbursement (if you have a fixed rate loan), fixed monthly cash advances for as long as you live in your home, fixed monthly cash advances for a specified time, a line of credit you can draw on or a combination of monthly payments and a line of credit.

Typically, you can take up to 60% of the limit in the first year and there are limits thereafter depending on how much you owe on an existing mortgage. How much you can borrow depends on your age, the value of the home, the interest rate and the lesser of appraised value or the HECM FHA mortgage limit of $679,650.

Qualifications for a Reverse Mortgage

  1. The youngest borrower must be 62 or older
  2. You must own your home outright or have a small mortgage and it must be your primary residence.
  3. You must not be delinquent on any federal debts or property taxes or hazard premiums.
  4. You must pass a credit check and lenders will evaluate your income, assets and monthly living expenses.
  5. Your home must meet FHA property standards and flood requirements.
  6. You can’t owe more than the value of your home regardless of how much you borrow and if the balance is less than the value of your home at the time of repayment, you or your heirs keep the difference.
  7. If you are married but your spouse is not on a HECM, and you die or move out permanently, your spouse can stay in your home as long as he/she is listed in the HECM documents as your spouse. Your spouse will not get any of the proceeds, however, and must maintain the home, pay taxes and insurance as long as he/she stays in the home.
  8. If you are in the hospital or a rehab center for longer than 12 months, the loan will become due and payable, which could result in foreclosure, as can defaulting on property charges, property taxes, maintaining property insurance, HOA fees, etc.
  9. If you are the heir to the estate and the last surviving parent dies, you assume responsibility for the future of the reverse mortgage. You may sell the home or purchase it for 95% of its appraised value.

Costs of a Reverse Mortgage

  1. The homeowner pays the cost of having the home appraised.
  2. Closing costs are higher than for a conventional mortgage and are based upon your home’s value.
  3. There are origination fees (which can be costly), mortgage insurance premiums, third party costs for title search, inspections, recording fees, mortgage taxes and servicing fees.
  4. As you get money over time, interest is added to the balance you owe each month, and this can add up.
  5. Unless you have a fixed rate variable reverse mortgage, the rates are tied to a financial index and the market and can go up. Interest rates are usually higher than for a traditional mortgage.
  6. Reverse mortgages can use up the equity in your home and you may have little to leave your heirs.

Reverse Mortgage Scams

Unscrupulous salespeople who are trying to sell you home improvements or tell you that you need a new roof or a repair you cannot afford, or your homeowner’s insurance won’t cover it, might suggest a reverse mortgage.

Some reverse mortgage salespeople try to induce you to take one out in order to buy an annuity or long-term care insurance, even though, in some cases, it is illegal to require you to purchase products in order to get a reverse mortgage.

Sometimes, a financial planner or investment advisor tries to convince seniors to buy financial products they don’t need and to take out a reverse mortgage to pay for them, or someone who has your power of attorney might take one out in your name and then divert the proceeds.

Unscrupulous realtors convince seniors to take out a “HECM for purchase” so they can buy a lower-cost home without having to put money down, and then divert the proceeds.

If you think you have been scammed or have second thoughts, you have at lease three business days after the closing tocancel the deal for any reason without penalty.

Conclusion

A reverse mortgage may be a good option for you, but you need to do your homework. Learn the facts. Good online resources are www.reversemortgage.org, www.hud.gov, and https://www.consumer.ftc.gov/articles/0192-reverse-mortgages.

Famed New York socialite and philanthropist, Brooke Astor, robbed of millions in America’s most high-profile guardianship abuse case

In 2008, Tony Marshall was convicted on 14 counts of theft, grand larceny, and conspiracy relating to the financial exploitation of his own mother, Brooke Astor, widow of William Vincent Astor, president of the Vincent Astor Foundation, and legendary patroness of New York City.

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Upon her marriage to Vincent in 1953, Brooke readily engaged in the family tradition that has made “Astor” a household name for over a century: funneling their massive real estate fortune into charitable organizations, honorable causes, and arts and education projects all over their hometown of NYC.

Vincent and Brooke, in particular, gave astounding amounts of money away.  Through the Vincent Astor Foundation, Brooke made grants to the New York Public Library, the Metropolitan Museum of Art, Rockefeller University, Cornell University Medical College, the New York Botanical Garden, and the Wildlife Conservation Society.

After Vincent’s death, Brooke continued on to forge a reputation as New York’s undisputed queen of philanthropy.  In 1996, New York Landmarks Conservancy declared her a “living landmark” for her contributions to the city.

But nearing her 100th birthday, Brooke’s health began to deteriorate.  Despite being in excellent physical health for most of her life, Alzheimer’s Disease started her down an undeniable path of mental decline, opening a door to her son, his wife, and their associates to prey on her wealth through guardianship.

While Brooke struggled to recall what happened from one day to the next, Tony exploited his mother to the tune of $14 million.  He made outrageous charges to her account, sold incredibly valuable pieces of art in her personal collection, altered her will to inherit her estate, and even persuaded her to give him a beloved property (which he then billed her to maintain).  Several of these maneuvers broke bequests she had made to leave her assets with charities.

Though Marshall eventually paid the price for his crimes in court, the Brooke Astor case remains America’s most publicized senior guardianship abuse case.

Court-Appointed “Guardians” Put Seniors In Assisted Living, Take Over Assets

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The New Yorker has a devastating article about the Guardianship Business in Nevada where Court-appointed “guardians” are able to take control of the lives of older people, selling their assets and moving them into assisted living.

“The scheme is ingenious,” she told me. “How do you come up with a crime that literally none of the victims can articulate without sounding like they’re nuts? The same insane allegations keep surfacing from people who don’t know each other.”