Reverse Mortgage Details: Early Pay-Off Consequences, Interest Rates, and Appraisal Disputes

by Bob in Montana, by Cathi in Georgia, and by Pampered in California

Reverse mortgage details for early pay-off consequences, interest rate pay-out options, and appraisal disputes: Bob is selling his home that's financed with a reverse mortgage. But since he owes more than the appraised value, will the bank expect him to pay back the difference? Cathi asks if reverse mortgages offer both fixed and adjustable rates. Pampered wonders how to dispute a low appraised value for a reverse mortgage.

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Ask Kate: Reverse Mortgage and Early Pay-Off Consequences

By Bob G. in Whitefish, MT
Reverse Mortgage Details: Early Pay-Off Consequences

Ms Kate,

I presently have a reverse mortgage on my house.

I know what happens if I as the last survivor dies.

I don't know however what happens if I decide to relocate and sell the home. Do the same rules apply?

If the home was put up for sale but the price, based on a appraisal, does not cover what I owe the lender, my estate (as in my death) wouldn't have to come up with the difference.

But is this true if I relocate and sell the home? Will I or won't I have to come up with difference?

***zz-portrait-left.shtml*** Kate's Answer: Reverse Mortgage and Early Pay-Off Consequences

Hi Bob,

Reverse mortgages insured by the Federal Housing Administration (FHA), also known as Home Equity Conversion Mortgages (HECMs), must be paid off when a home is sold.

Should the loan balance be greater than the sales price, you, the relocating borrower, will not be required to pay back the difference. However, in the event of equity, it belongs to you.

Getting Individualized Help

But because HECM is not the only reverse mortgage program, it is important that you understand the terms that govern your specific loan. The wisest practice is to take your paperwork to a reverse mortgage counselor and/or an attorney for review.

HUD housing counselors can be reached at 800-569-4287. Other sources of help can be found at Reverse Mortgage Income for Senior Homeowners.

On June 12, 2015, Housing and Urban Development (HUD) announced a compassionate policy change for homes financed with a Home Equity Conversion Mortgage (HECM). Get the news at June 2015 FHA Reverse Mortgage Rules: Non-Borrowing Spouses.

Best wishes,

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Ask Kate: Interest Rate and Pay-Out Options for Reverse Mortgage

By Cathi C. from Mableton, GA
Reverse Mortgage Details: Interest Rate and Pay-Out Options

Kate,

Is the reverse mortgage interest rate fixed or variable on the loan amount that gets paid off when the property is sold?

***zz-portrait-left.shtml*** Kate's Answer: Interest Rate and Pay-Out Options for Reverse Mortgage

Hi Cathi,

With HECMs, borrowers can choose between fixed rates and lines of credit with adjustable rates. Pay-out options differ between the two.

For a fee, borrowers are sometimes allowed to switch pay-out options.

Adjustable Rate Line of Credit Pay-Out Option

The line of credit (LOC) pay-out option offers borrowers the ability to take a set amount of cash each month and on an as-needed basis.

This works well for retirees who don't need the full amount of cash immediately because interest is not charged on unused funds. Plus the LOC grows over time, based on available funds.

A BIG deal for homeowners whose banks froze their lines of credit in 2007 and 2008, the HECM LOC cannot be frozen assuming the borrower continues to meet requirements.

Fixed Rate Lump Sum Pay-Out Option

With the fixed rate pay-out option, borrowers receive an immediate lump sum payment. This could be an excellent solution for someone with pressing financial issues.

But due to the first year's withdrawal limits, borrowers could end up forfeiting some of their funds. (Odd, right? But then again, it's government program.)

Don't Miss Your Counseling Session

When you attend the counseling for reverse mortgages (required), ask which pay-out option fits your needs and goals best.

Brush Up on Your Reverse Mortgage Knowledge

Learn more about these specialty mortgages created to produce income for senior homeowners without a monthly payment at What Is a Reverse Mortgage?

Best wishes,

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Ask Kate: Reverse Mortgages and Appraisal Disputes

Pampered from Sacramento, CA
Reverse Mortgage Details: Appraisal Disputes

Kate:

We recently applied for a reverse mortgage. Our home was appraised but we disagree with the appraisal.

Can we request a re-evaluation?

We completely upgraded our home in 2008 to 2009 and we don't feel any of our upgrades were taken into consideration.

We have better comps than he used. Please advise. Thanks.

***zz-portrait-left.shtml*** Kate's Answer: Reverse Mortgages and Appraisal Disputes

Hi Pampered,

I understand the disappointment of a low appraised value (read: one person's opinion on a given day), especially after a homeowner has poured money into a remodel.

The days are gone (or at least they are supposed to be) when buyers, sellers, and homeowners could influence the outcome of an appraisal. But that shouldn't stop you from requesting a re-evaluation of the appraised value based on facts.

How to Challenge a Low Appraised Value

So here's your 3-part assignment.

1. List the upgrades from the remodel. Back up the cost with actual receipts. Attach before-and-after pictures.

2. Drive by comparable properties and snap a few exterior pictures. Remember that the homes must be near your neighborhood, be a similar style, size, and age, and need to have sold recently. Include in your report why these properties are superior to the comps used by the appraiser.

3. Write a cover letter summarizing why you believe the appraised value should be higher. Be specific. Offer facts. Back-up your claims. (Don't be snarky even though it might feel justified.)

Then are no guarantees that your hard work will result in a higher appraised value. But you'll never know if you don't try.

When her appraisal came in $10,000 low, Betty reviewed the report and discovered four major discrepancies. Read her story and my suggestions for getting her refinance back on track at Home Appraisal Discrepancy.

Best wishes,

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