Reverse Mortgages:
Get the Facts Before Cashing In On Your Home’s Equity

For detailed and helpful information, call Kaye Horn at 713-426-0106.
You may call direct or call collect.

Whether seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses, many older Americans are turning to “reverse” mortgages”. They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

Three Types of Reverse Mortgages
The three basic types of reverse mortgage are:

1. single-purpose reverse mortgages, which are offered by some state and local government agencies and nonprofit organizations;

2. federally-insured reverse mortgages, which are known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD); and

3. proprietary reverse mortgages, which are private loans that are backed by the companies that develop them.

1.Single-purpose reverse mortgages generally have very low costs. But they are not available everywhere, and they only can be used for one purpose specified by the government or nonprofit lender, for example, to pay for home repairs, improvements, or property taxes. In most cases, you can qualify for these loans only if your income is low or moderate.

2. and 3. federal-insursed reserve mortgages, or HECMs and proprietary reverse mortgages tend to be more costly than other home loans. The up-front costs can be high, so they are generally most expensive if you stay in your home for just a short time. They are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. The counselor must explain the loan’s costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area.proprietary reverse mortgages, which are private loans that are backed by the companies that develop them. Proprietary reverse mortgages are generally the most expensive type of reverse mortgage. But if your home is worth more than HUD's 203-b
(see glossary set out below) limit for your county, one of these loans might give you larger cash advances than a HECM. It may also cost less than a HECM in the earlier years of the loan.

These mortgages can be used for any purpose, and are open to homeowners aged 62 and over. There are no income limits. Only one program is now available throughout the United States. Another is currently being offered in about 40 states. Several new programs are likely to become available during 2007.

The amount of money you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, current interest rates, and where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

The HECM gives you choices in how the loan is paid to you. You can select fixed monthly cash advances for a specific period or for as long as you live in your home. Or you can opt for a line of credit, which allows you to draw on the loan proceeds at any time in amounts that you choose.You also can get a combination of monthly payments plus a line of credit.

HECMs generally provide larger loan advances at a lower total cost compared with proprietary loans. But owners of higher-valued homes may get bigger loan advances from a proprietary reverse mortgage. That is, if you have a higher appraised value without a large mortgage, then you may likely qualify for greater funds. Location (for example, your neighborhood) is only one part of the determination of appraised value.

Loan Features
Reverse mortgage loan advances are not taxable, and generally do not affect Social Security or Medicare benefits. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.
As you consider a reverse mortgage, be aware that:

Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs.

1. The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan.

2. Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions.

3. Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.

4. Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable.

5. Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

Getting a Good Deal
If you are considering a reverse mortgage, shop around to compare your options and the offered terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It will help you ask more informed questions, which could lead to a better deal.

If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call toll-free, 1-800-677-1116. Ask the AAA for information about available “loan programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs.

If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders.

If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information.

No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs.

Be a Savvy Consumer
Be cautious if anyone tries to sell you something, like an annuity, and suggests that a reverse mortgage would be an easy way to pay for it. If you don’t fully understand what they’re selling, or you’re not sure you need what they’re selling, be even more skeptical.

Keep in mind that your total cost would be the cost of what they’re selling plus the cost of the reverse mortgage. If you think you need what they’re selling, shop around before you buy.

No matter why you decide to take a reverse mortgage, you generally have at least three business days after signing the loan documents to cancel it for any reason without penalty. Remember that you must cancel in writing. The lender must return any money you have paid so far for the financing.

Reporting Possible Fraud
If you suspect that anyone is violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with:

your state Attorney General’s office or state banking regulatory agency, and

the Federal Trade Commission (FTC). You can do that online at ftc.gov or by phone, toll-free, at (1-877-382-4357).

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. Contact the following organizations for more information:

Reverse Mortgage Education Project

AARP Foundation
601 E Street, NW
Washington, DC 20049
1-800-209-8085
www.aarp.org/revmort/list

Glossary of
Reverse Mortgage Terms

203-b limit - the dollar limit in each county for how much of a home's value can be used to determine the amount of money you can get from a federally insured HECM reverse mortgage; the name comes from Section 203-b of the National Housing Act

AARP model specifications - rules recommended by AARP for analyzing and comparing reverse mortgages

acceleration clause - the part of a contract that says when a loan may be declared due and payable

adjustable rate - an interest rate that changes, based on changes in a published market-rate index

annuity - a monthly cash payment you get from an insurance company for the rest of your life.

appraisal - an estimate of much a house would sell for if it were sold; also called its market value

appreciation - an increase in a home's value

Area Agency on Aging (AAA) - a local or regional nonprofit organization that provides information on services and programs for older adults

cap - a limit on the amount an adjustable interest rate may go up or down during a specified time period

closing - a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins

condemnation - a court action saying a property is unfit for use: also, the government taking private property to use for the public by the right of eminent domain

creditline - a credit account that lets a borrower decide when to take money out and also how much to take out; also known as a "line-of-credit" or "credit line."

current interest rate - in the HECM program, the interest rate currently being charged on a loan; it equals the one-year rate for U.S. Treasury Securities, plus a margin (see below)

deferred payment loans (DPLs) - reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments

depreciation - a decrease in the value of a home

eminent domain - the right of a government to take private property for public use; for example, taking private land to build a highway

expected interest rate - in the HECM program, the interest rate used to determine a borrower's loan advance amounts; it equals the 10-year rate for U.S. Treasury Securities, plus a margin (see below)

Fannie Mae - a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government

Federal Housing Administration (FHA) - the part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans

federally insured reverse mortgage - a reverse mortgage guaranteed by the federal government so you will always get what the loan promises; also, a Home Equity Conversion Mortgage (HECM)

fixed monthly loan advances - payments of the same amount that are made to a borrower each month

home equity - the value of a home, subtracting any money owed on it

home equity conversion - turning home equity into cash without having to leave your home or make regular loan repayments

Home Equity Conversion Mortgage (HECM) - the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency

initial interest rate - in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals the one-year rate for U.S. Treasury Securities, plus a margin

leftover equity - the sale price of the home minus the total amount owed on it and the cost of selling it; the amount the homeowner or heirs get when the house is sold.

loan advances - payments made to a borrower, or to another party on behalf of a borrower

loan balance - the amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.

lump sum - a single loan advance at closing

margin - in the HECM program, the amount added to the one-year Treasury rate to determine the initial and current interest rates, and to the 10-year Treasury rate to determine the expected interest rate

maturity - when a loan must be repaid; when it becomes "due and payable"

mortgage - a legal document making a home available to a lender to repay a debt

non-recourse mortgage - a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid

origination - the process of setting up a mortgage, including preparing documents

property tax deferral (PTD) - reverse mortgages that pay annual property taxes; usually offered by state or local governments

proprietary reverse mortgage - a reverse mortgage product owned by a private company

reverse annuity mortgage - a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.

reverse mortgage - a home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid

right of recission - a borrower's right to cancel a home loan within three business days of the closing

servicing - administering a loan after closing, such as maintaining loan records and sending statements

shared equity - an itemized loan cost based on a percent of a home's value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000

Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled

tenure advances - fixed monthly loan advances for as long as a borrower lives in a home

term advances - fixed monthly loan advances for a specific period of time

Total Annual Loan Cost (TALC) rate - the projected annual average cost of a reverse mortgage including all itemized costs

T-rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program

uninsured reverse mortgage - a reverse mortgage that becomes due and payable on a specific date

AARP does not endorse any reverse mortgage lender or product.

Reverse Mortgages

Arrows Real Estate!

Reverse Mortgages

For detailed and helpful information, call Kaye Horn at 713-426-0106. You may call direct or call collect.

Glossary of Reverse Mortgage Terms

For detailed and helpful information, call Kaye Horn at 713-426-0106.
You may call direct or call collect.

Glossary of
Reverse Mortgage Terms