|
|
|
|
|
|
|
Top Five Ways to Get Ripped Off With A Reverse
Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Peter G. Miller
They're called "the golden years," that time of life when you have
enough income and assets to live well and work less. Given
retirement accounts, real estate appreciation over time, pensions
and Social Security the ability of those over age 62 and above to
live well is largely unprecedented in human history.
Unfortunately, where there's gold there are also people who want
to take it. As Woody Guthrie told us, there are some people who
will rob you with a gun -- and some people who will rob you with a
fountain pen. How you're robbed is a lot less important than the
fact that it's possible to be robbed.
When it comes to reverse mortgages there have been a lot of
improvements in recent years. That said, if you're thinking of
getting a reverse mortgage you must be aware that it's possible to
be ripped off and lose some or all of the equity earned over a
lifetime. Here are the five biggest threats to your home and
wealth.
1. A reverse mortgage is complex. It's a form of financing
which allows you to gain access to the equity in your home without
moving. As long as you live on the property the lender cannot
demand repayment. When you move or pass away the debt to the
lender can only be repaid from the value of the property. This
means that you and your heirs cannot be sued for any unpaid
balance.
Because reverse mortgages are complex it's necessary to have
proper, independent consultation. This is not a do-it-yourself
project. Mistakes can cost tens of thousands of dollars and make
it harder to enjoy the work of a lifetime.
Protect your interests. No matter how enticing the program looks
-- no matter how wonderful the sales pitch or the salesperson --
never sign reverse mortgage paperwork until you have first spoken
with an attorney who specializes in "elder law."
Ah, you might say, but attorneys cost money. That's true, but the
expense of making a reverse mortgage mistake can be vastly larger.
If money is an issue then check the legal resources in your
community. See if services are available through legal clinics or
on a pro bono basis. Organizations which provide services for
senior citizens and community housing organizations may be able to
help locate an attorney willing to work with you.
In addition to advice concerning reverse mortgages, meeting with
an attorney or legal clinic is a good time to take care of two
related matters: In our society you need certain paperwork. Be
sure you have both a will and a living will.
2. Not all reverse mortgages are alike. Most reverse
mortgages today are insured by the Federal Housing Administration
(FHA). The FHA calls reverse financing "home-equity conversion
mortgages" or HECMs. With an FHA reverse mortgage if a lender does
not deliver promised funds the federal government will step in and
make good on the loan. Because of this protection, it's very
important to make sure that the loan is covered under the FHA
program.
3. Reverse mortgage costs, even within the FHA program, can
vary. Don't overpay. Protect your interests by shopping
around. Speak with a variety of reverse mortgage lenders. Make
sure they each provide information in writing, including:
*An amortization statement.
*A statement showing the total annual loan cost rate.
Always show this paperwork to your attorney before selecting a
reverse mortgage program.
4. Beware of expensive reverse mortgage fees. Reverse
mortgages have steep up-front costs. Sometimes these costs are
hidden by the strange uses of common terms. For example, you might
hear that a reverse mortgage has an "origination" fee. Usually an
origination fee is equal to 1% of the mortgage amount, but not
with reverse mortgages.
In the world of FHA reverse mortgages, an origination fee is
"limited" to 2% of the home's value or 2% of the FHA's local loan
limit, whichever is less.
In other words, if you want a $250,000 reverse mortgage, your
property is worth $500,000 and the FHA allows loans for as much as
$362,790 in your area, the origination fee would be the lesser of
$10,000 ($500,000 x 2%) or $7,258 ($362,790 x 2%).
Compare either of these numbers with $2,500 -- that's 1 percent of
$250,000 and the origination borrowers would usually expect for a
$250,000 loan.
The bottom line: Always get your exact costs up front, in writing,
including all fees, charges and costs.
5. Beware of "shared appreciation" reverse mortgages. In
some cases it's possible to get a reverse mortgage that does not
charge interest -- instead the lender gets a share of the home's
value when the property is sold.
Other lenders, however, offer shared appreciation reverse
mortgages where the lender gets a share of the home's value PLUS a
steep rate of interest. If you do the math with these loans the
lender's returns are remarkable -- as are the borrower's costs.
As always, sign nothing until the paperwork is properly reviewed.
For in depth information regarding
Reverse mortgages or to find a
Reverse mortgage lender near you, visit us online.
|
|
|
|
|
|
