Forbes: What Seniors Should Know Before Getting a Reverse Mortgage

Potential borrowers of reverse mortgages, whether they are Home Equity Conversion Mortgages (HECMs) or a proprietary, non-government product, should be aware of key features before engaging in a loan. These include borrower obligations related to taxes and homeowners insurance, as well as the ways in which reverse mortgage products have undergone significant changes in recent years.

This is according to Richard Eisenberg, an editor at NextAvenue.org in a new contributed column at Forbes.

Based on a recent podcast discussion between Eisenberg, personal finance writer Terry Savage and investor advocate Pam Krueger, the trio discussed how the attributes of reverse mortgages have been going through a series of changes over the past several years, with one of the participants also noting how one such product helped an immediate family member.

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“[I know firsthand] how beneficial a reverse mortgage can be,” Savage said on the podcast. She actively assisted her father in taking out a reverse mortgage while he lived in a condo in his 80s, and it helped him to make ends meet in retirement, she says.

“It provided extra tax-free cash he needed to remain independently in his own home,” Savage describes.

However, she did have to pay some of her father’s condo association assessment fees, she adds, in order to ensure he could keep the reverse mortgage and continue living in his home. This is why it’s important for a borrower to understand his or her obligations before entering into a reverse mortgage loan, says Eisenberg.

“And that’s one of the essential things to understand about reverse mortgages: If you get one, you’re obligated to continue paying property taxes and homeowners insurance premiums as well as taking care of any necessary maintenance and repairs,” he writes. “Otherwise, the lender may foreclose on your home.”

The fees required to originate a reverse mortgage are also worth keeping in mind for anyone going into the process, Eisenberg says.

“Reverse mortgages, like traditional mortgages, come with an assortment of fees, which are added to the loan balance,” he writes. “For instance, there’s an origination fee, which could be as high as $6,000, plus monthly insurance fee of ½ of 1% of the outstanding loan balance. The upfront fees can exceed those of home equity lines of credit, according to the Government Accountability Office.”

The fees are one reason why the reverse mortgage product would be a better fit for a borrower planning on staying in his or her home for a long period of time, Krueger adds. Also worth keeping in mind is the fact that the reverse mortgage program has undergone significant changes aimed to enhance borrower protections, Eisenberg says. In the podcast discussion, Krueger describes her own journey in coming around on entertaining the reverse mortgage as a possibility.

“This mortgage has matured,” says Krueger. “I used to be not a fan, but now I’m in the camp that this is a tool to consider.”

Read the article at Forbes.

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  • Eisenberg obviously understands that upfront fees and ongoing MIP are all added to the balance. What is not as obvious is that he understands the impact of those same costs have on the proceeds that are available under a HECM.

    As most readers know, upfront costs reduce the cash that is available from a HECM while ongoing MIP does not except in the determination of the principal limit.

    It always surprises me when consumers state that the HECM of today is better than the HECM of fiscal 2009. The HECM of fiscal 2009 had higher Principal Limit Factors. Its lending limit starting retroactively to 1/1/2009 was $625,500.

    Yet the HECM what we have today is the only HECM we have to sell. So it is the best HECM available to consumers. So originators should not initiate discussions with consumers about how much better the HECM of yesteryear was better than the ones available today. Even if the consumer does, let them get it out of their system and then remind them that the HECM we can originate for them is the best they can get.

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