Unlike a regular mortgage, which demands that you pay back a bank for a loan to get a house, a reverse mortgage is a loan to you that's secured by the value of your home. The loan is usually paid back, with interest, from the proceeds when you or your heirs sell the house.
The minimum age to be accepted for a reverse mortgage is 62. But the older you are and the larger the value of your house, the more that you can borrow which might be the key to saving your house from foreclosure. A widow with a girl in college had been wrestling to maintain her home. She agreed to borrow $121,450 in a subprime mortgage, and used some of the cash for new gutters and other repairs. But the advantages of the loan were overweighed by the heavy regular payments, which gobbled up almost all of her revenue.
She slipped behind on her payments, and her home was slated for foreclosure in Apr 2008. That is when the Home Defense Program of the Atlanta Legal Help Society, stepped in. First, they swayed the mortgage servicing company to accept a payoff of $100,192, about $40,000 less than it was owed including late charges and penalties.
Then they organized a reverse mortgage on the home, which was worth $179,500, so she could make the payoff. Reverse mortgages could be a lifeline for older house owners who can't benefit from the foreclosure prevention plan expounded by the Obama administration, which, with similar plans, is focused on whittling home loan payments to about 1/3 of a borrower's gross revenue. Such plans don't help seniors on small fixed incomes who could not pay a once a month bill whether or not the interest rate were slashed.
An advocate has to help the house owner begin the process of getting a reverse mortgage, while at the same time working to stop foreclosure action and most likely convincing the bank to accept a payoff that is less than what's owed. When details of a loan are obviously illegal, violating rapacious lending laws that were in place when the loan was made, one of the first routes is to work out if a suit can be brought against the lending corporation, saving the senior's home that way. Many loans are not technically illegal, but it is apparent that they should not have been made to an older person on a fixed earnings. The second hurdle is preparing the reverse mortgage itself. Historically, these loans are used to give folks with almost no mortgage debt a one-off sum or monthly revenue to pay costs while they live in their home. The older the homeowner and the bigger the home equity, the additional money a reverse mortgage will yield. But when there is a large mortgage, mixed with today's dropping home costs, the house owner might have very little equity. In that position, a reverse mortgage can be tough to get.
Why not a reverse mortgage? Even for people that qualify, reverse mortgage loans are not always the best option. They are awfully costly because the majority of the loan fees are based primarily on the full price of the home, up to a state program limit of $625,500. In typical mortgages, costs are based mostly on a proportion of the amount you can borrow. Accumulated loan charges aren't tax-refundable till the loan is paid back totally generally at some point in the distant future. Since the loan grows bigger over time, it might be tough to leave the home debt-free to a successor. Each householder who receives a federally insured Home Equity Conversion Mortgage, the most well liked kind of reverse mortgage, must first receive support from one of the governing body or non-profit housing support agencies authorized by the U.S. Office of Housing and Urban Development. Many professionals think such analysis should be made more generally available to seniors looking at repossession.
Get a quote using our reverse mortgage calculator to see if this might be a solution for you.
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( 2.9 / 132 )I was in Glendale California this week and met with a very nice 69 year young lady who told me about how she loves to travel and go to cultural events. She told me about her trip to Salzburg and how she went to the Symphony while there and many other trips she has been blessed to go on.
A few years ago though she started having such a problem with her hip that she had to stop working which greatly reduced her monthly income. Now not only is she unable to travel to these events she can’t even afford to go to all the Operas, Symphonies and other events she loves so much right in her own back yard of the Los Angeles area.
There is so much to see and do in Southern California that if you have the cash flow and the desire you can do something uplifting and artistic almost every day of the week. This grand lady has the desire but no longer has the cash flow and so at a time in her life when she should be enjoying no longer working she is more or less stuck at home.
One of our Loan Officers met with her and showed her how the fixed reverse mortgage could pay off her current mortgage and free up a little over $1,000 per month and provide her with an additional $250,000 of cash to do whatever she wants to. I pointed out that she could take a very nice trip every year for the rest of her life and still have extra to go to all of the cultural events she wants too.
I have seen so many ways that the reverse mortgage has improved the lives of seniors that I struggle to see why some folks still try to just get by when they could be living a wonderful life by accessing some of the equity they still have in their home. Why do without just to leave it to your kids? What do you think the kids are going to do with the money? They will go have the fun you should have had with your money.
January 1, 2010 the limits on the reverse mortgage will be reduced, now is the time to get started or you will be too late and get a lesser amount. Get a quote using a reverse mortgage calculator to see how much money you qualify for so you can make an informed choice.
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( 2.9 / 218 )Some Senior homeowners are still waiting to get a reverse mortgage, that may not be a good idea. Check out this story on CNBC.com:
Home prices in the US could fall by another 25 percent because of high unemployment and another leg down will come for stocks, banking analyst Meredith Whitney told CNBC Thursday.
"No bank underwrote a loan with 10 percent unemployment on the horizon," Whitney said. "I think there is no doubt that home prices will go down dramatically from here, it's just a question of when."
Local governments and states are chronically under-funded and "most states are under water," adding to the problem of low private consumption, she said.
cnbc.com
Meredith Whitney
"If you look at the drivers for unemployment I don't see that reversing very soon," Whitney said.
If consumers were to decide to spend, "that would be a game-changer," but it would be an unnatural thing to do in a recession, she said.
"A lot of themes are constant, which is the US consumer and the small business doesn't have any credit, credit is still contracting," Whitney said.
Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.
"Obviously that doesn't bode well for spending," Whitney said.
She said another leg down was coming for stocks but that Goldman Sachs
GOLDMAN SACHS GROUP INC
GS still has "gas in the tank" and she kept her 'buy' on its stock.
"Goldman is taking a lot of the place that Lehman left," she said.
But banks are not going to see their earnings rise too much from now on, she warned.
"Banks are taking advantage of what the government is doing by artificially inflating asset prices so they can ride a steep yield curve and they're going to have a third quarter that reflects that," Whitney said.
The bottom line for those looking into a reverse mortgage is don't wait, you could end up seeing your home values drop even more if you do.
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( 3 / 275 )I get asked a lot of questions about how a Living Trust affects a Reverse Mortgage; I will try to simplify this issued and provide answers to the most common questions.
First what is a Living Trust? Well Wikipedia has this to say: A living trust, or in Latin inter vivos trust (inter vivos is Latin for "between the living"), is a trust created during a person's lifetime to either save money on taxes or setup long term property management. All living trusts are designed to avoid probate.
Since we are dealing with real estate when we are using a reverse mortgage the keys are the property management and the avoid probate issues.
Most of the questions that I hear regarding the reverse mortgage can be answered by us finding out who the parties to the trust are. Wikipedia has another point to help us here: The Parties To The Trust
• Grantor/Settlor: The person who sets up the trust; also called the settlor, trustor, or trustmaker.
• Trustee: This is the person who will manage the trust assets. This also may be the settlor in a Revocable Living Trust, since the settlor wants to manage his or her own property. Some revocable living trusts are "self settled trusts" (that is, the grantor is also a beneficiary of the trust).
• Successor trustee: Where the Grantor is a Trustee, the Successor Trustee is the person who will manage the trust assets when the Grantor dies, or in the event the Grantor becomes incapacitated. Upon the Grantor’s death, the Successor Trustee will immediately have the same powers that the Grantor had as Trustee to buy, sell, borrow, or transfer the assets inside the trust.
•
The Successor Trustee has the right to distribute the trust’s assets according to the Grantor’s instructions in the trust instrument. The Successor Trustee does not have the legal right to change the trust. The trust becomes irrevocable upon the Grantor’s death. The Successor Trustee has the right to manage the assets in the estate, but must do so for the benefit of the remainder beneficiaries.
At the Grantor’s death, the Successor Trustee automatically takes over without court order, pays any debts, expenses and taxes directed to be paid by the terms of the written trust document, and then distributes the property to the trust beneficiaries. Where the trust is scheduled to terminate on the Grantor’s death, and the trust is merely a means of avoiding probate, the death beneficiary should ordinarily be named Successor Trustee.
• Beneficiaries: The people who will receive the benefit of the trust’s assets are called beneficiaries. Sometimes, the grantor is the original beneficiary. Those who take after the grantor's death are "remainder beneficiaries".
If the all of the Grantors/Settlors are alive then you still have a revocable trust and as long as they are the ones living in the property as their primary residence then you should be fine to do a reverse mortgage. Except in Texas where they have a law that does not allow property held in a trust to have a reverse mortgage.
If one of the Grantors/Settlors has died then there is a possibility that the property has been put into the decedents portion of the trust which is irrevocable and would cause a problem since reverse mortgages can only be done on property that is not in an irrevocable trust. See LegalZoom.com: Disadvantages of an AB Living Trust
But AB living trusts are not without their disadvantages. The most important of these disadvantages is that the surviving spouse cannot sell their spouse's share of the trust property. The surviving spouse is entitled to income generated by Trust A and to certain allowances for his or her health and support.
Also see about.com: When the first spouse dies, the first $3,500,000 of his or her assets are funded into the B Trust. This effectively uses the first spouse's $3,500,000 federal exemption from estate taxes. The B Trust can be relatively flexible and used for the benefit of the surviving spouse and descendants or other beneficiaries.
If the survivor did as described above at about.com they would most likely not be able to get a reverse mortgage. The reason is the trust is irrevocable and would limit the survivor’s ability to finance the property and the ability of the lender to encumber the property.
In all cases the lender is going to require a trust review by an attorney usually arranged by the title company, if the attorney allows it then the broker can move forward and process the reverse mortgage.
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