Posted on: Monday, March 15, 2010

Reverse Mortgage Guide

By Paul M. J. Suchecki
Tags: estate planning, reverse mortgage, ...
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In many ways, unemployment has hit older Americans the hardest. If you are unemployed and over 60, your chance of being rehired is less than somebody 20 years your junior, despite your experience. It’s tougher to hang onto your home.

There is a way for you to keep your home and stop making mortgage payments for the rest of your life if you meet key conditions.  If you are at least 62 years old and have enough equity in your home you occupy, you can draw on it through a reverse mortgage.  A reverse mortgage is not a home equity loan, or home equity line of credit. These latter loans have to be paid off monthly. With reverse mortgages, borrowers never have to make any payments while they live in their homes. The loan is paid off when the borrower moves, dies, or the property is sold.

Borrowers can choose to receive monthly payments, a lump sum, or line of credit. A credit line will give a borrower the most money. A lump sum will provide quick cash, while monthly payments are the most secure. A borrower will receive them for as long as she lives in her home. FICO scores and proof of income don’t factor into the granting of these loans. The size of reverse mortgage is determined by the borrower’s age, the loan’s interest rate and the value of the property. The older the borrower, the more can be borrowed.

There are three types of reverse mortgages:

• The Federal Housing Administration’s Home Equity Conversion, HECM program,
• Fannie Mae’s Home Keeper program, and
• Those offered by private lenders.

Available for 25 years, they’ve become more popular recently. In 2007, reverse mortgages insured by the US Department of Housing and Urban Development topped 100,000.

Reverse Mortgages are complex financial intruments.  HECM and Home Keeper loans require that borrowers get counseling before taking them out. If you are going through a private lender that doesn’t demand counseling as a precondition, you should still get professional help you can trust. Click here for a list of local free or low cost HUD approved counseling agencies .  Here’s a list of HUD approved lenders . You can also call HUD toll free for the same information at 1(800) 569-4287.

How much cash could you get? AARP offers this handy online reverse mortgage calculator to find out.

Beware of Scams
Older Americans are especially vulnerable to fast talking, high pressure, financial manipulation. Make sure that you are dealing with a reputable organization, that you have professional help and that you fully understand everything that you are signing.

The most common scam is perpertrated by supposed estate planning services which lock you into a contract that takes between 6 -10% of the amount you borrow. All you get for that cut  is information readily available directly from HUD.

Another common scam is by purported money managers who convince seniors that easy riches can be at hand if a lump sum taken out on a reverse mortgage is put into a speculative investment. You won’t be evicted from your home, but could easily lose all your equity.  

Illinois Attorney General Lisa Madigan initiated lawsuits this month against Hartland Mortgage Centers of Woodridge, Illinois, and American Advisors Groupof Irvine, California for deceptive reverse mortgage marketing practices, so be careful there are sharks out there. Still, if used wisely, reverse mortgages can ease your cash flow and financial anxiety as you age.