Welcome to the reverse mortgage blog.
I will be bringing you fresh information, news, and articles on reverse mortgages issues. I am going to start this blog off with an article about some of the disadvantages/hazards of reverse mortgages and how you can avoid them.
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The Disadvantages of Reverse Mortgages
by Charles Kirkendall
A reverse mortgage can be an attractive option for many home-owning seniors that are having a hard time making ends meet. With a reverse mortgage, a senior homeowner will receive money for their home equity from a lender without having to make repayments for as long as they live in their home. So with the right reverse mortgage a senior homeowner can maintain their standard of living while retaining ownership of their home.
This of course, is the picture that all the reverse mortgage companies try to paint for prospective borrowers. Nonetheless, there are many differences that have to be understood between reverse mortgage's and conventional loans. If these differences are not understood, they can cause financial problems for reverse mortgage borrowers.
Disadvantages of Reverse Mortgages
The first disadvantage is the relative cost of a reverse mortgage. Reverse mortgages tend to be very expensive when compared with a conventional mortgage. This is due to the rising-debt nature of reverse mortgages. For example, a typical reverse mortgage may provide a homeowner with a $300 per month payment with a yearly interest rate of 12 percent compounded monthly. Over the course of ten years, the homeowner will receive $36,000 in payments, but will owe almost $70,000-almost twice as much as received.
The second disadvantage is the complex and confusing contracts of reverse mortgages, that can have a tremendous impact on the overall cost of a reverse mortgage to the borrower. The complexity of the contracts often allow lenders and third parties involved in arranging reverse mortgages to not fully disclose the loan's terms or fees. These numerous other front-end and/or back-end fees can also quickly drive up the cost of a reverse mortgage. These fees can include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity and shared appreciation fees.
Out of all these fees, the shared equity and shared appreciation fees should be avoided, as they can quickly raise the cost of the mortgage without providing any benefit to the borrowers. As an example, a shared appreciation fee can give a lender an automatic 50% interest in the difference between the current value of the home when the loan is signed and the appreciated value of the home when the loan is terminated. What makes the fees unfair is the fees have no relation to the amount that is borrowed.
The third disadvantage is the reverse mortgage payments can affect eligibility for old age pensions, Medicaid, or supplemental Social Security income. Senior's may not even realize this problem until after they already have their reverse mortgage, and only then do they find out that this can have the opposite affect on a seniors finances then what they were trying to accomplish in the first place by taking out the reverse mortgage.
Another disadvantage is the fact that reverse mortgages reduce the value of a senior's assets and estate. This will affect the amount of inheritance received by the borrower's heirs.
How to avoid these hazards
The best way for a senior to avoid these hazards is to be careful when choosing a lender, by obtaining bids from three separate lenders. They should take these contracts to a reverse mortgage counselor for evaluation. This will allow them to accurately evaluate the three contracts before deciding on best one for their situations.
About the author: Charles Kirkendall writes articles on reverse mortages and other senior financial issues. Visit reverse mortgage annuity for more information and resources.
Note: This article can be reprinted free of charge as long as it is reprinted in its entirety including the resource block at the bottom with all links enabled.
Thursday, September 10, 2015
Saturday, September 5, 2015
Avoiding Reverse Mortgage Scams
As reverse mortgages become more popular, more and more cases of reverse mortgage fraud are popping up. Since reverse mortgages typically involve your largest asset (your home), you will want to make sure that you do not fall victim to one of these scams.
Reverse Mortgage Scams
Getting charged for free information: Some companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of estate planning services. Seniors signing up with these contracts are unaware of that these firms are charging a fee of 6 to 10 percent of the total amount borrowed. These fees can run into the tens of thousands. HUD has issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.
Pushing reverse mortgages as a way to pay for large purchases: Some companies will try to suggest using a reverse mortgage to purchase the items they are selling, like annuities or insurance.
Unethical reverse mortgage terms: Some reverse mortgage lenders will slip excessive fees and terms into their contracts. These can have a devestating effect a Seniors equity. In some cases lenders have used shared equity or shared appreciation terms. These fees cost homeowners equity without providing any benefit to the senior homeowner.
Protecting Yourself
What can you do to protect yourself from reverse mortgage scams?
The best way to protect yourself is to use a HUD approved reverse mortgage counselor to evaluate your situation and potential reverse mortgage contracts. The will alert you to any potential problems.
If you suspect that a compay is violating the law, let your reverse mortgage counselor know and then file a complaint with your state Attorney General's office or banking regulatory agency and the Federal Trade Commission (FTC) at www.ftc.gov.
Resource: Brought to you by Reverse Mortgage and the Reverse Mortgage Blog.
Reverse Mortgage Scams
Getting charged for free information: Some companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of estate planning services. Seniors signing up with these contracts are unaware of that these firms are charging a fee of 6 to 10 percent of the total amount borrowed. These fees can run into the tens of thousands. HUD has issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.
Pushing reverse mortgages as a way to pay for large purchases: Some companies will try to suggest using a reverse mortgage to purchase the items they are selling, like annuities or insurance.
Unethical reverse mortgage terms: Some reverse mortgage lenders will slip excessive fees and terms into their contracts. These can have a devestating effect a Seniors equity. In some cases lenders have used shared equity or shared appreciation terms. These fees cost homeowners equity without providing any benefit to the senior homeowner.
Protecting Yourself
What can you do to protect yourself from reverse mortgage scams?
The best way to protect yourself is to use a HUD approved reverse mortgage counselor to evaluate your situation and potential reverse mortgage contracts. The will alert you to any potential problems.
If you suspect that a compay is violating the law, let your reverse mortgage counselor know and then file a complaint with your state Attorney General's office or banking regulatory agency and the Federal Trade Commission (FTC) at www.ftc.gov.
Resource: Brought to you by Reverse Mortgage and the Reverse Mortgage Blog.
Wednesday, September 2, 2015
Ready for Retirement?
Millions of Americans - 43 percent of all working-age households - are at risk of lower living standards when they reach 65, according to a new National Retirement Risk Index released Tuesday by the Center for Retirement Research at Boston College. Even two-earner households are at risk, because Social Security replaces less of their preretirement income.
The retirement risk index is drawn primarily from analysis of the federal government's Survey of Consumer Finances, which is updated every three years. By applying research methods to the federal surveys since 1983, the center found we're in substantially worse shape than we used to be.
The retirement risk index is based on a best-of-all-possible worlds scenario. It assumes workers don't retire until they are 65, that they spend down the equity in their homes by getting a reverse mortgage and that they create their own pensions by putting all their savings in an inflation-adjusted annuity at retirement - three things most Americans don't do.
Change those assumptions to workers retiring at 63, not tapping into home equity and investing their assets themselves, and a whopping 66 percent of working-age households are at risk.
One reason retirement readiness has declined over the last two decades is that fewer workers can count on a traditional pension plan. Instead, many have retirement savings plans, such as 401ks, which they have to fund and manage themselves.
Younger people and those in low-income households are most at risk of being unable to support their current lifestyles when they reach retirement age. Retiring later and saving more are ways to tackle the problem.
Source: Center for Retirement Research at Boston College
Information brought to you by www.reverse.settle-today.com and reverseannuity.blogspot.com
The retirement risk index is drawn primarily from analysis of the federal government's Survey of Consumer Finances, which is updated every three years. By applying research methods to the federal surveys since 1983, the center found we're in substantially worse shape than we used to be.
The retirement risk index is based on a best-of-all-possible worlds scenario. It assumes workers don't retire until they are 65, that they spend down the equity in their homes by getting a reverse mortgage and that they create their own pensions by putting all their savings in an inflation-adjusted annuity at retirement - three things most Americans don't do.
Change those assumptions to workers retiring at 63, not tapping into home equity and investing their assets themselves, and a whopping 66 percent of working-age households are at risk.
One reason retirement readiness has declined over the last two decades is that fewer workers can count on a traditional pension plan. Instead, many have retirement savings plans, such as 401ks, which they have to fund and manage themselves.
Younger people and those in low-income households are most at risk of being unable to support their current lifestyles when they reach retirement age. Retiring later and saving more are ways to tackle the problem.
Source: Center for Retirement Research at Boston College
Information brought to you by www.reverse.settle-today.com and reverseannuity.blogspot.com
Tuesday, September 1, 2015
Beware of advisor shilling 'lump-sum' reverse mortgage
Here is another great question and answer article from Bob Russ that cautions about listening to any advisor that pushes lump-sump reverse mortgages for investment purposes:
Q: I began getting Social Security last February. This year I lost my job. A financial advisor suggests I take a reverse mortgage ''lump sum'' and invest it to supplement my Social Security income. I have no other income and no heirs. My home is worth about $400,000 with a $77,000 mortgage at 4.25 percent interest, which adjusts by 2 percent next year. I love my home and want to stay here as long as possible. Do you think a reverse mortgage will work for me?
A: Yes. But I am very worried that so-called financial advisor might have suggested you take a reverse mortgage lump sum so he can sell you an annuity or other investment to earn himself a large sales commission.
If you want to receive monthly lifetime income from a reverse mortgage to supplement your Social Security income, you can elect that choice direct from the reverse mortgage lender. You don't need that financial advisor to help you.
However, you will need to use $77,000 of your reverse mortgage entitlement to pay off your current mortgage. Then you won't have any more monthly mortgage payments. The balance of your reverse mortgage can be taken as lifetime monthly income, a credit line (except in Texas), lump sum or any combination.
Robert J. Bruss is a California lawyer and licensed real estate broker. Leave your questions at www.bobbruss.com
Q: I began getting Social Security last February. This year I lost my job. A financial advisor suggests I take a reverse mortgage ''lump sum'' and invest it to supplement my Social Security income. I have no other income and no heirs. My home is worth about $400,000 with a $77,000 mortgage at 4.25 percent interest, which adjusts by 2 percent next year. I love my home and want to stay here as long as possible. Do you think a reverse mortgage will work for me?
A: Yes. But I am very worried that so-called financial advisor might have suggested you take a reverse mortgage lump sum so he can sell you an annuity or other investment to earn himself a large sales commission.
If you want to receive monthly lifetime income from a reverse mortgage to supplement your Social Security income, you can elect that choice direct from the reverse mortgage lender. You don't need that financial advisor to help you.
However, you will need to use $77,000 of your reverse mortgage entitlement to pay off your current mortgage. Then you won't have any more monthly mortgage payments. The balance of your reverse mortgage can be taken as lifetime monthly income, a credit line (except in Texas), lump sum or any combination.
Robert J. Bruss is a California lawyer and licensed real estate broker. Leave your questions at www.bobbruss.com
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