While this is a comprehensive assessment, seniors above the age of 65 have a few factors that play here. Fact is, over the age of 65 - you're not looking at long term health coverage, you're looking at maintenance. So really reverse mortgages help you continue living as you would - not necessarily begin a carefree life. Just look at the advice given in one of the most needed areas by an Oregon-based company: www.reverseoregon.com
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Hi QuestionsforMom, most of the information in the article is still correct, but specifics will vary depending on your state. You should also know that there are more options than just taking monthly annuity payments. For example, you can receive a line of credit that you put in place for emergencies only, and you don't touch it unless you need it.
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I have a question - is this information still accurate? I cannot see any type of time stamp or update but I can see that some of the comments are 5 years old. I'm currently considering something like this and would like to know if recent insurance and tax law changes have changed any of this information. Thank you!
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A reverse mortgage can be beneficial to many seniors, but you definitely have to do your homework and shop around. The best way to get a reverse mortgage is through a licensed broker that specializes exclusively in reverse mortgages. They can get volume rates from multiple lenders. Check out freedomstarreversemortgage.
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One thing very important if the Reverse Mortgage is really needed make sure both spouses are on the loan note, if possible. In my boss' case it was just his wife on the loan note and when she passed on the Reverse Mortgage bank came knocking at his door asking for the loan to be paid back immediately. My boss tried to refinance the house without any luck, so he had to sell the house to pay back the Reverse Mortgage. Here he thought he had a year to do all this, turned out he only had a couple of months.

As of August of last year, the rules have been changed for new Reverse Mortgage note holders who had signed up since August.... the surviving spouse who is not on the note can now stay in the house if said note holding spouse passes on... but that person had to have been married to the note holder at the time the note was written. There are other qualifications, but that new ruling was really needed.

I wouldn't recommend a Reverse Mortgage to help with paying bills... because the Reverse Mortgage becomes yet another REALLY LARGE bill that will eventually need to be paid. If the home is becoming too expensive to maintain, it is time to sell and downsize.
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Be VERY careful about using a reverse mortgage, especially the ones with the "famous actors" on the TV commercials. These programs have hoops to jump through to verify your continued residence at the home. My grandmother got a reverse mortgage several years ago, and since then has been diagnosed with dementia. She no longer is able to do her own bills or paperwork and she failed to send in their yearly proof of occupancy form last year, unbeknownst to me. She still lives in the home with in-home nursing care. I live several states away from my grandmother, so I tried as her POA to clear things up, but they refused to work with me, conveniently lost documentation I sent in, and they have now started foreclosure proceedings. They have my phone number, and address and they know I'm the POA, but they did not ONCE tried to contact me to let me know they were doing this. I found out about it after the nurse told me my 91 year old grandmother had been SERVED with a foreclosure notice by the sheriff's department!! I have had to hire a lawyer to try to clear things up. Not saying this couldn't be a viable option for someone, but just make sure you know what you're signing up for, and that some of these programs, especially the ones you see on TV, are very aggressive about foreclosing if you don't jump through their hoops.
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Many people consider the reverse mortgage as a smart aid for senior citizens who lack financially after retirement. This program is good and beneficial. I find the website helpful. reversemortgagelendersdirect
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Excellent post. The key is understanding your clients needs, education and patience. Most people view reverse mortgages as a product for the needy or cash strapped, and not as a wealth planning tool.
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isn't - Google an article from the New York Times, October 14, 2012 by Jessica Silver Greenberg: “Reverse Mortgages Costing American Their Homes”
read the comments too, lots of personal stories - some positive but most not.

Another article on RM is from the National Consumer Law Center, called “Subprime Revisted: How RM Lenders Put Older Homeovers” Equity at Risk”

You have to be very careful. Personally I think RM work best for the young old....like the couple who is 65 & 68 and have a 300K home in a stable and aspiring neighborhood and in good health and in theory have another decade or two in the home so that the value of the home will increase so that the RM is a win-win.The amount of $$ you can get will depend on the appraisal of the home, so if the home is of low-value, then you actually do not get all that much $$. I think it's about 50% on the FHA backed RM's. I looked into RM on my mom years & years ago, but her home is tough on comps as it's in historic zone and is much smaller (150-180K) than the others around her (400-600K) and has foundation issues so never any FHA loans buyers (just cash or conventional) so it would not work for her property wise and then would be a cluster to deal with for Medicaid.

Also I'd do a full listing of all the costs on the home for that past 3 years to see what you are looking at & then look at the majors in the house (roof, AC, heat, water heater) and if any of those will need replacement in the near future. If alot of the RM $ has to get spent on the home, then it might not be worth doing. Then I'd call a Realtor to say Dad is thinking about selling and see what they have sold in the last 6 months that are comperable and the DOM (days on market). It will give you an idea of what you would be up against if you had to do a sudden sale.
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It's dad, rather than mom, and no RM yet. I'm meeting with a lawyer in a couple of weeks to work out all the ramifications, but as I understand it,the RM application approval process can be lengthy and I want to get the ball rolling as property taxes are coming due.
The RM line of credit will allow dad to pay his property taxes and do some repairs on his home and maybe pre-pay funeral expenses, if that's allowed.

If he needs to go into a NH, we'll put his property up for sale (with the proceeds after the RM is paid going to Medicaid, I assume), so it's not a matter of us trying to hold onto his home. I'm just looking to not make a mis-step in the way we go about things that would make his Medicaid application any more complicated than it has to be.
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Isn'tEasy - really they will have other issues on the RM besides the line of credit.

I'm assuming it's your mom who lives alone and already has gone an done a RM. Mom & you need to look and very carefully review the contract obligations for the RM loan. Almost always it is required that the property owner - who is the mortgage holder - must reside in the property otherwise the RM loan agreement is out of compliance and due in full. If they move into a NH, they no longer occupy the house, it can be viewed as no longer their primary residence and therefore are required to pay the loan. They are out of compliance for the RM.

RM and Medicaid is very sticky to deal with. The line of credit is usually viewed as income and can keep they from qualifying for Medicaid.

Plus another issue is the co-pay required for Medicaid. If they qualify for Medicaid, all their income less their states monthly personal needs allowance MUST be paid to the NH. So say mom lives in Texas and has $ 800 in SS and $ 1,000 in retirement. So mom's monthly income is $ 1,800 a month. Texas PNA is $ 60.00 a month. So every month, mom must pay $ 1,740.00 ($ 1,800 less $ 60 personal needs) to the NH in order to comply with Medicaid rules. So just where is mom going to come up with the $$ needed to pay for property taxes, homeowners / flood /wind or other insurance on the house as well as other maintenance and repairs on the property??? Mom won't have the income to do any of that as it must go for her Medicaid co-pay. If you allow for the property to deteriorate, the loan could be called in. Being away for a while, like a trip or cruise or staying at your condo at the beach for the summer is allowed but if the property gets run down while you are away, the loan could be called in. After Hurricane Katrina, some homeowners who had RM, got letters w/detailed questionnaire as to the status of the home, how it was being secured, status of repairs, utility information - this was all about calling in loans that were in areas with uncertainty. And this was Katrina in 2005 before the real estate market tanked. Two of the big reverse mortgage players, Bank of America & Wells Fargo, got out of the RM business in 2012. They were like 50% of the market too - they still service & honor the old loans but do not write any new ones.

Really get out the RM contract and review carefully.
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If someone (who has no other assets other than their home) has a RM line of credit open, and they need to go on Medicaid and enter a nursing home, what are the rules regarding their withdrawals from the line of credit?
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SOmetimes a lump-sum is the best option - for example, when extinguishing a significant debt. Determining the immediate and long-term cash needs of the borrower is paramount. Most of my clients opt for the line of credit, and almost always the SAVER program, which avoids the up-front MI. Again, done right, the RM is a fine loan option. I welcome any questions directly as I work with clients, their advisors each day.
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Below are excepts from an article from the New York Times, October 14, 2012 by Jessica Silver Greenberg: “Reverse Mortgages Costing American Their Homes”

“ The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out. Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die, have long been fraught with problems. But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates.”

"MetLife was the latest major player to exit the market, in April. That followed the departure last year of the two biggest reverse mortgage lenders, Bank of America and Wells Fargo, which cited falling housing prices and difficulty assessing borrowers’ ability to repay the loans.”

“Reverse mortgages also have troublesome incentive structures that might encourage brokers to steer seniors toward lump-sum loans, which carry a fixed interest rate, rather than a line of credit with a variable interest rate, the bureau found. In a lump sum arrangement, the interest charges are added each month, and over time the total debt owed can far surpass the original loan.Brokers earn higher fees on these loans and even more money when they sell the loans into the secondary market, where they can get rates nearly double those for variable loans, according to rate sheets obtained by the consumer bureau.”

There are over 400 comments with lots of personal RM stories with the article

Another article on RM and subprime is from the National Consumer Law Center, called “Subprime Revisted: How RM Lenders Put Older Homeovers” Equity at Risk”. www.nclc.org/images/pdf/pr.../report-reverse-mortgages-2009.pdf

You may have to type in to Google it, as linking from a post is iffy sometimes.
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I'd like to add some information - the amount available is based on the youngest borrower's age, the value of the home, and the expected interest used in the calculation. Borrower's certainly allowed to obtain their own property insurance - in fact, the lender is NOT allowed to do that for them (unless they let their policies lapse - but that is disclosed - that they are supposed to keep a policy in tact).

I worked for Wells Fargo - they did not leave the market because of rising "upside down" properties. Many of the companies offering reverse mortgages now were not sub-prime lenders. Banks do not take losses on these upside-down properties because the loans are FHa-insured.
Every client I meet is asked a series of questions - how long do they intend to stay in the home? Are their heirs expecting/needing the equity of that property? What are their immediate cash needs? Is there any urgency? What cash needs do they anticipate in the next 2-5 years? When these questions are asked, and replies listened to, the reverse mortgage can be an fine way to preserve the quality of life for seniors, preserve assets as well.
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Didn't finish my post, regarding insurance and RM. Often what happens is that instead of the homeowner getting their homeowners / fire / flood or other property insurance on their own, the insurance company is selected by the RM holder and uses their own pool of insurers - which often is at a much, much higher rate or higher deductible than you could get from your local State Farm or Allstate agent. The insurance is often folded into the RM, so the property owner doesn't realize the true extent of the costs.

If you do a RM, imho, you really really should to do one that is FHA backed and FHA requires that you go through a program to understand exactly what RM is and does and what the compliance is. FHA limits RM to be 50% of the value of the property (I'm not sure about that %, it could be 60%) so that you don't find yourself in a payback situation that you cannot do, if you have to enter a NH or AL.

NurseLawyer has brought up other very important points in RM's.
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I think you have to be VERY careful with the reverse mortgage. Under FHA backed RM, if the owner moves from the house, the reverse mortgage is out of compliance on the agreement. Please go over the agreement to see what the policy reads.

If you do a RM there are 4 things that can be a problem for compliance and cause the RM to be due:

FAILURE TO PAY - property taxes, homeowners/flood/wind insurance. One issue with RM is that instead of the homeowner
Selecting their own insurer, the insurance is folded into the RM and uses insurers that the RM selects
MOVING TO A NEW RESIDENCE- if reverse mortgage property stops being your primary, you are out of compliance with loan. So if you move into a NH, you are required to pay your loan.

BEING OUT OF THE HOME FOR MORE THAN 1 Yr - the loan will come due. Most policies have this.

ALLOWING THE PROPERTY TO DETERIORATE - being away for a while, like a trip or cruise is allowed but if the property gets run down while you are away, the loan could be called in. After Katrina, some homeowners who had RM, got letters w/detailed questionnaire as to the status of the home, how it was being secured, status of repairs, utility information - this was all about calling in loans that were in areas with uncertainty. And Katrina was in 2005 before the real estate market tanked.

Two of the big reverse mortgage players, Bank of America & Wells Fargo, got out of the new reverse business in 2012. They were like 50% of the market too - they still service & honor the old loans but do not write any new ones. They did it because many of the homes with RM now are negative-equity so they were taking losses on those RM's (done in the go-go real estate years of the 1990's – 2005). What is left in the RM market are smaller mortgage companies, many of which did subprime mortgages.
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For "nurselawyer" - I agree, I would not recommend a reverse mortgage for a vacation (but proceeds can be used for any purpose, that's the guidelines). I always recommend a strong plan for the tax-free proceeds that become available with a reverse mortgage. Traditional LOC are fine, but they require a monthly payment, become due, can be frozen or decreased as well. Preserving the quality of life is paramount - as far as "last resort" - should someone exhaust all their assets before considering a reverse mortgage? Many people seek a RM for the liquidity it offers - in fact, 50% of my clients dont draw a single dollar from their RM until years later.
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"non-recourse" means (in this instance) that the total liability (amount due) for both the borrower/s and their heirs is limited to the value or what the property sells for. Example, upon death of the last borrower, accrued interest and principal totals $147,000 - but the house sells for only$125,000. The heirs would not be responsible for that difference. The same holds true if the borrowers sold the property in that same situation. This is an important feature.
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I have a problem with suggesting that one use a reverse mortgage to "take an extended vacation" unless one has long term care insurance. As only about 10% of people actually have a good policy of this insurance, the home may be the only protection against being forced to go to a nursing home rather than home care or assisted living. I have worked in nursing homes as an RN and I've sued them as a lawyer for neglect of elders. I don't recommend that one plan to go into a nursing home as a financial strategy. Lots of people are being steered the wrong way about reverse mortgages. I believe, as The Consumer's Union does, that they are an absolute last resort. If one can use family loans, a line of equity or any other plan to finance care, may be a lot better than picking a nursing home.
Carolyn Rosenblatt, RN, Attorney, Mediator, AgingParents.com
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What does "non-recourse" mean? Otherwise, thanks for the clarification.
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There are several ways to access funds with a reverse mortgage. The most advertised is the "let your home pay you" option. That's fine, if you have plenty of equity and a reasonably valued home. For those who do not need money now, but anticipate a need, or just desire the liquidity, a reverse mortgage line of credit is a fine option. The amount allowed is calculated the same way as the other options - you just have the flexibility to access the funds when you need them, tax-free. The line of credit grows about 4% year, can never be frozen like a traditional HELOC, and can never be reduced. Of course, there are NO monthly payments, and the loan is a non-recourse loan. This makes more efficient use of the proceeds while providing liquidity.
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Interesting and possibly useful article.

reversemtgpro, explain this option, please. I had not heard of it until your mentioning it.
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Sound advice - but please note that you can also have access to a line of credit that grows about 4% a year as well. You do not have to opt for the monthly disbursement only, and disbursements can be for perpetuity or for a set term as well.
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Helpful, clear article that explains how to make use of a reverse mortgage and protect one spouse for Medicaid. Katherine Askew, www.ElderAuthority.com
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