REVERSE MORTGAGES - NOT ALL BAD

REVERSE MORTGAGES - NOT ALL BAD

I recently attended a Financial Planning CPA Interest Group Presentation by a knowledgable Wells Fargo Reverse Mortgage expert. He explained in detail the advantages, and the costs of Reverse Mortgages. He cleared up many myths and misunderstandings we had heard.

REVERSE MORTGAGES HAVE COSTS JUST LIKE A REGULAR MORTGAGE. Obtaining a reverse mortgage often costs $17,000 or more. The costs are added to the loan (just like in a regular refinance). You shouldn't go in and out of one like you would a Home Equity Line of Credit.

There are THREE WAYS TO ACCESS YOUR REVERSE MORTGAGE FUNDS:

• Lump Sum - Used to keep from making any more mortgage payments. (Only Full Lump Sum Reverse Mortgages are eligible for a fixed rate.)

• Monthly Payments - Used to provide additional monthly cash flow.

• Line of Credit - Used to draw on when additional cash is needed or desired - for a special vacation, medical bills, etc.

REVERSE MORTGAGES ARE NON-RECOURSE LOANS (a short sale shortage doesn't have to be paid by the borrowers' or their estate).

• If the home drops below the amount of the loan, the borrower doesn't have to surrender their home, or pay what is short if they move out of the home to a care facility.

• Because of the risk to the lender, PMI (Mortgage Insurance) is required to be charged to the borrower. Reputable lenders only charge PMI on the balance owing each month. If the home is sold short, the PMI insurance is billed by the lender for the balance due not covered by the sale.

THE BORROWER (HOME OWNER) ALWAYS RETAINS TITLE TO THE HOME when a reverse mortgage is obtained! A lien is recorded against the home just like for any home mortgage.

• The Reverse Mortgage can be paid off by relatives if they want to keep the home! The home does not have to be sold! It can also be refinanced any way desired by homeowner, relatives, beneficiary of the estate or trust, etc. This could be done of the owner stops living in the home for a year or more - (Which triggers collection of the Reverse Mortgage loan. During the PERIOD of non residence the property taxes, insurance and other expenses must continue to be paid by the homeowner.

THERE IS NO HOME MORTGAGE INTEREST WRITEOFF for a reverse mortgage since no payments are being made. However, the Trust or Estate gets a full write-off when the Reverse Mortgage is paid off through sale or refinance.

There should not be a prepayment penalty on a Reverse Mortgage!

NORMALLY IF THE HOME IS NOT OCCUPIED FOR ONE YEAR, THE REVERSE MORTGAGE HAS TO BE REPAID - Either from sale of the house, or refinance, or any other means.

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