The past two years have seen more changes in reverse mortgages than the preceding decade. The most obvious has been the increased advertising. Mail boxes are full of promises of big bucks and the television ads seem to be constant. So, it seemed like a good idea to visit this topic again.
What is a reverse mortgage? It is a mortgage specifically designed to help homeowners over 62 access the equity trapped in their homes. There are no monthly payments, so you borrow the money you get and you borrow the interest on that money. This means your debt goes up over time. The loan never comes due until the last homeowner leaves the property. Qualifying is based on age and home value, not credit history or income.
Vermont has laws specific to reverse mortgages. The Green Mountain State allows only reverse mortgages insured by the Federal Housing Administration (FHA). These are called Home Equity Conversion Mortgages (HECM).
A counseling session with an FHA-approved HECM counselor is part of the application process. Vermont requires that counseling be face-to-face, or over the phone with those agencies that have registered with Department of Banking, Insurance, Securities and Health Care Administration. Two agencies have signed up so far to do phone counseling. Face-to-face counseling is available in Brattleboro and Lyndonville.
Currently, the lending limit for HECM’s has been increased to $625,000. This has greatly increased the number of retirees who can benefit from a reverse mortgage. It is also now possible to use a reverse mortgage to purchase a home.
Many people are refinancing from conventional to reverse mortgages simply to free themselves from the risk of foreclosure.
Reverse mortgages are now available with either a fixed rate (where you take all available funds at once) or an adjustable rate (where you get a credit line and borrow money only as you need it).
Perhaps the biggest change has been in the fees usually associated with reverse mortgages. For most people looking into a HECM, the origination fee of up to $6,000 has been a real obstacle. Even though all the costs associated with a reverse mortgage are part of the loan, $6,000 is a lot of money. In the last few weeks, most of the larger national companies introduced a choice of programs with or without an up front origination fee.
Reverse mortgages are now offered by numerous brokers and direct lenders. Program choices have increased dramatically. Choosing whom to work with is more important than ever. Your local bank or credit union may be able to recommend someone (most still don’t offer reverse mortgages). You can also check online with the National Reverse Mortgage Lenders Association, www.reversemortgage.org.
Involving trusted advisors is also important. Talk to your family and friends. Increasingly, lawyers are offering reverse mortgage advice. If you don’t have an attorney, seek out one who specializes in Elder Law.
These are challenging times and reverse mortgages can often help, but they aren’t for everyone. Do your research, take your time, and get answers to all your questions before you decide.
After all, Aging in Place, it doesn’t happen by accident.