The Reverse Mortgage Handbook: A Consumer's Guide for Senior Homeowners

Reverse Mortgages - Are They Right for You?

THE REVERSE MORTGAGE HANDBOOK provides detailed information and examples to assist in a comprehensive understanding of three popular reverse mortgage products: - HUD's Home Equity Conversion Mortgage (HECM), - Fannie Mae's Home Keeper Mortgage, and - Financial Freedom's Cash Account.

THE REVERSE MORTGAGE HANDBOOK explains the terminology and the process related to the reverse mortgage industry. This book focuses on: - Available Reverse Mortgage Products, - Eligibility Requirements, - Fund Disbursement Options, - Consumer Safeguards, and - Associated Costs.

This book is a must-have for any senior considering a reverse mortgage! THE REVERSE MORTGAGE HANDBOOK supplies the necessary information to make an objective, educated decision on the reverse mortgage option that is right for you.

Heading Forward in Reverse

Most homeowners understand traditional or "forward" mortgage basics. A mortgage company loans you money to purchase your home. As you pay your monthly interest and principal payments, the equity in your home increases and your debt decreases. Simple.

Once a monthly mortgage payment is made, homeowners are offered only a few options to draw from their home s equity:
- Sell the home,
- Refinance the mortgage, or
- Apply for a home equity loan.

Selling the home may not always be the preferred option. Refinancing and home equity loans require monthly repayments plus income verification to ensure that the loan will be repaid.

For those age 62 or over, another special option is available. Homeowners remain in their homes, retain the property s title, and receive tax-free funds without making monthly repayments. This is called a reverse mortgage. It may also be considered a zero-payment home loan, since no monthly mortgage repayments are required.

With a forward mortgage, you and your home begin with a large amount of debt and very little equity. Through the years as you make monthly payments, your debt decreases as your equity (cash invested in your home) increases. As you pay your mortgage, the cash invested in your house transforms into equity.

As the name implies, a reverse mortgage is just the opposite of a forward mortgage. Homeowners convert a portion of the equity in their homes into cash. Since you retain the title to your home throughout the life of the reverse mortgage, you own your home - not the bank or mortgage lender. And, you will never owe more than the value of your home because the amount due can never exceed the home s value. No exceptions!

How homeowners spend the cash does not require any explanation. It may be used to supplement monthly income, develop a line of credit, cover medical expenses, or to simply enjoy an increased quality of life throughout the retirement years.

Reverse mortgages include numerous safety measures to protect seniors and their homes. After the final paperwork is signed at closing (and the reverse mortgage closing involves just as much paperwork as a traditional "forward" mortgage), the applicants still have three days to change their minds without legal obligation. (This is called a three-day right of rescission.)

Since many homeowners have spent a lifetime paying off a mortgage and building a place to call "home", the possibility of losing their home is a major concern. However, since you don t have to make monthly repayments on the reverse mortgage, you don t have to worry about missing a payment and losing your home. Again, you retain the title to your home. The bank or lender will not own it!

In the past, some senior citizens have been charged thousands of dollars for reverse mortgage information that is available free. Some companies call it "estate planning" fees. Beware of any company that charges a fee for simply receiving information! HUD has directed all HECM lenders to stop doing business with companies that charge such fees.

More of the federally-mandated safeguards are reviewed in detail in Chapter 7.

Tax-Free Funds

The income you receive through a reverse mortgage is not taxed; the money is already yours. These are the funds you have paid on your mortgage throughout the years. Therefore, you are not actually earning income from the reverse mortgage.

Because you are not earning income, benefits from non-need based programs such as regular Social Security and Medicare benefits should not be affected. If you receive Supplemental Social Security (SSI), Medicaid, AFDC, food stamps, or any other need-based income, reverse mortgage funds may affect your benefits (if the money is not spent in the same month it is received) . Be sure to contact a benefits specialist, your local Area Agency on Aging, or a financial counselor for confirmation of your benefits safety.

If you are purchasing an annuity with your reverse mortgage funds, annuity advances are considered income under Supplemental Security Income (SSI) and Medicaid programs. Thus, an annuity may also affect your benefits.

Use of Reverse Mortgage Funds

You may use your reverse mortgage funds in any manner you wish. Common uses are:
- To pay rising health care costs,
- Supplement monthly retirement income,
- Purchase long term care insurance,
- Make home improvements or modifications,
- Pay off an existing mortgage or other debt,
- Purchase a new car,
- Travel,
- Gift to children or grandchildren, or
- Funding college tuition.