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Thoughts of Reverse Mortgages

Thoughts of Reverse Mortgages

For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a home equity loan. But a conventional loan really doesn't free up the equity because the money has to be paid back with interest.

A Reverse Mortgage avoids monthly payments and does not require the money to be paid back during a person's lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title "reverse mortgage". They are more expensive than a regular mortgage and should not be used unless there is a serious need for money. But if that is the only way to be able to stay in your home, then it should be considered.

Many seniors can use a reverse mortgage to pay off an existing conventional mortgage, to get money to pay off debt and make home repairs. For those seniors who are in need of long term care and want to stay in their home, a Reverse Mortgage can provide the money needed to pay for in-home personal care. They can also pay for need medical equipment and handicap adaptation to their home.

There are no income, asset or credit requirements. It is the easiest loan to qualify for. The bank has no recourse to demand payment from any family member if there is not enough equity to cover paying off the loan. There is no penalty to pay off the mortgage early. One big difference is that you are not personally liable on the loan. The lender can only get repaid from the equity in the house.

You must be at least 62, own and live in, as a primary residence, a home (1 - 4 family residence, condominium, co-op, permanent mobile home, or manufactured home) in order to qualify for a Reverse Mortgage.

The amount of Reverse Mortgage benefit you can get will depend on your age at the time you apply for the loan, the Reverse Mortgage program you choose, the value of your home, current interest rates, and for some products, where you live.

As a general rule, the older you are and the greater your equity, the larger the mortgage will be. The Reverse Mortgage must pay off any outstanding liens against your property before you can withdraw additional funds. The loan is not due and payable until the borrower no longer occupies the home as a principal residence (i.e. the borrower sells, moves out permanently or passes away). At that time, the balance of borrowed funds plus interest is due and payable. All additional equity in the property belongs to the owners.

The most popular Reverse Mortgages are the so-called HECM loans. HECM loans require that the applicant meet with a government approved counseling agency to be sure the applicant understands the Reverse Mortgage process.

The Federal Trade Commission states: "Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary Reverse Mortgages also require counseling. The counselor is required to explain the loan's costs and financial implications, and possible alternatives to a HECM, like government and nonprofit programs or a single-purpose or proprietary Reverse Mortgage. The counselor also should be able to help you compare the costs of different types of Reverse Mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. Most counseling agencies charge around $125 for their services. The fee can be paid from the loan proceeds, but you cannot be turned away if you can't afford the fee."

A Reverse Mortgage Specialist in your area can answer your questions, calculate the amount of loan you can receive and advise the type of loan for your needs. The National Care Planning Council ( has a list of Reverse Mortgage Specialists in your area.

So if you have a problem meeting your monthly costs, it may make sense to consider a Reverse Mortgage.

Attorneys Stephen O. Allaire (Of Counsel) and Halley C. Allaire are partners in the law firm of Allaire Elder Law.
Attorneys Stephen O. Allaire (Of Counsel) and Halley C. Allaire are members of the National Academy of Elder Law. Attorneys, Inc.
Allaire Elder Law is a highly respected, and highly rated law firm with offices in Bristol, CT.
We can be contacted by phone at (860) 259-1500 or by email.

If you have a question, send a written note to us and we may use your question in a future column.




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