December 2013 New Information on Reverse Mortgage
by Danny in St. Louis, MO and by Enid in Guaynabo, Puerto Rico
Ask Kate for December 2013's new information on reverse mortgage program for senior homeowners: Is your home financed but only in your spouse's name? It happens. Couples desperately need a mortgage, yet for whatever reason, only one qualifies. Please consider the following if a lender left your name off a reverse mortgage application.
December 2013's Reverse Mortgage News Continued
Until recently, surviving spouses whose names were not listed on the reverse mortgage paperwork have been subject to foreclosure if they could not pay off the full loan balance. Besides losing a spouse, they simultaneously suffered the loss of their homes.
Then in October 2013, it was determined by the courts that HUD violated the rights of two elderly non-borrowing spouses by requiring them to pay full reverse mortgage loan balances to keep their homes. This became unfair when unrelated home buyers were allowed to purchase the houses based on the lesser of 95% of the market value or loan amount. This placed surviving spouses at a great disadvantage, especially when the value of homes fell below the loan amounts.
However, don't get too excited over the court's recent ruling because HUD isn't giving up without a fight. Not overly surprising, HUD claims the courts have weakened their financial standing. In this light, HUD appealed the decision this month, December 2013.
I will keep you updated on further reverse mortgage news as it breaks. Meanwhile, don't hesitate to use the comment link at the bottom of the page with a related question.
More FHA Reverse Mortgage News
Now let's take a look at two Ask Kate reverse mortgage questions.
Reverse Mortgage Service Fees Charged Monthly By Danny B in St. Louis, MO
My mother's reverse mortgage is getting fees added to it every month. We didn't know or understood that there were monthly fees adding up. They are being charged to the "Initial Principle Limit".
She has only used a small amount of what we were told is available to her but now are telling us that she owes the full principle amount instead of what she has used.
We are confused!
Ask Kate answers: Reverse Mortgage Service Fees Charged Monthly
A fee included in the FHA Home Equity Conversion Mortgage (HECM), the most common reverse mortgage program today, is the monthly service fee. And yes, it is charged to the principal, reducing the equity.
If you believe the service fee was inadequately disclosed (or not disclosed at all) after reviewing your mom's RM loan documents, call the servicer.
If your inquiry is not satisfactorily addressed, contact Missouri's attorney general to file a complaint. Call 800-392-8222 for help with filing complaints.
How Much Do Heirs Owe on a Reverse Mortgage
Because there are several payment plans with the HECM (see my answer below to Enid), as well other types of proprietary programs, I hesitate to interpret your loan servicer's response.
But in general, the amount your mom owes on her reverse mortgage will grow as her funds are advanced. Interest charges are added also.
When the house is eventually sold, heirs cannot owe more than the value of the home. However, if the heirs decide to keep the home, they will need to refinance the loan balance. As I explained earlier, this also has created hardships for non-borrowing surviving spouses. See above for recent court rulings
If this does not answer your question, I recommend calling back the loan servicer for written clarification based on your mother's specific reverse mortgage parameters. Ask for the amount required to be repaid if the house was sold today, based on the funds your mother has received to-date.
What Should I Know About Reverse Mortgage By Enid R. in Guaynabo, Puerto Rico
I am a divorced woman of 62 years old. Although I am a mental health professional, there are no jobs available in Puerto Rico.
I own my home which has no debt. My only income will be my incoming social security check starting in December which is not enough to cover my living expenses and pay off my property taxes owed.
I always thought that the Reverse Mortgage product is made by the banks for the bank's benefit, not necessarily for seniors advantages.
Nevertheless, I find myself with no way out to cope with my daily living expenses, house maintenance and pay off property taxed owed.
I would like to hear your advice about what kind of plan should I choose or IMPORTANT FACTS I should know before calling reverse mortgage companies.
I greatly appreciate your advice.
Guaynabo, Puerto Rico
Ask Kate answers: What Should I Know About Reverse Mortgage
As you can tell by reading this page, it is very important to understand how reverse mortgage programs work before signing your final loan documents
, even before beginning the loan application process.
Besides understanding how the program affects heirs or surviving spouses, you need to pay close attention to fees and how payments are calculated.
Reverse Mortgage Fees
Reverse mortgages are notorious for fees. Steep fees. So you must get a Good Faith Estimate
. Then meticulously compare the cost of the reverse mortgage to the proposed income.
Is the amount of income you'd get from a RM worth the loss of equity from the fees? Or would you be benefit more from selling your home and investing the proceeds? (I recommend consulting a real estate agent and financial planner to explore this idea.)
Reverse Mortgage Payment Calculations
Keep in mind that two main factors are used to calculate how much you can borrow, the amount of equity in your property and your age.
No one would be surprised that equity is a contributing factor to larger loan amounts. But finally, it pays to be older! Yes, being older helps to qualify for more reverse mortgage income!
Reverse Mortgage Payment Options
You will probably be given several payment options...
- Equal monthly payments for life.
- Equal monthly payments for a fixed period.
- Unscheduled payments drawn from a line of credit (LOC).
- Combined LOC draws and equal monthly payments.
- Combined LOC draws and equal monthly payments for a fixed period.
- Single lump sum payment.
Get more information on payment options at HUD's Reverse Mortgage Program for Senior Homeowners
Reverse Mortgage Counselors
Remember, you should be required to consult with a reverse mortgage counselor. The price ranges from $0 to perhaps $125, depending on your financial status.
I suggest bringing along a trusted friend or family member for note taking during the counseling session. You will find this is more productive than attempting to listen while taking your own notes.
After reading this, you'll probably have more questions. Write them down to ask the adviser. (Don't go off memory.) Feel free to also ask more questions here.
I also hope you'll also post back with tips from the counseling session to enlighten other senior homeowners who are considering reverse mortgage as an ongoing source of stable income.
Important: Senior homeowners should consult a financial planner, tax accountant, and/or attorney as applicable to evaluate their circumstances before financing with a reverse mortgage. Even if not a loan requirement, reverse mortgage counseling is highly recommended.
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