Donna Yates, Move 2 North Georgia.net: What is a Reverse Mortgage - Buying in North Georgia Blue Ridge Mountains

What is a Reverse Mortgage - Buying in North Georgia Blue Ridge Mountains

I can't tell you how many times I would quickly turn the channel when I saw Robert Wagner or James Garner onJames Garner, Reverse Mortgage TV touting Reverse Mortgages.  I really like James Garner and I couldn't believe he was a spokesperson for what seemed to me to be another way to con seniors.  But then, afterall, it was James Garner, he wouldn't con anyone. 

I decided I had judged too quickly and so I launched my own investigation.  I recently attended a workshop on Reverse Mortgages held by a local attorney in McCaysville, Jim Johnstone and here's what I learned:

 

What is a Reverse Mortgage?  Unlike traditional home equity loans, the Reverse Mortgage is a home loan that allows seniors 62 years of age or older to use the equity in their home.  It does not require payment of any kind until the last surviving borrower permanently leaves the home.

The Federal Housing Administration (FHA) Home Equity Conversion Mortgage or HECM is the most popular and is a government insured loan.  A HECM has no payments, it is non-recourse (meaning the final amount of the loan will never exceed the value of the home) and it's a tax free line of credit - Tax Free!  Also, closing costs are included in the financing of the loan.  There may be a fee to initiate the loan, estimate $300.

What are the Requirements?  A homeowner and all borrowers are at least 62 years old.  There are no income or credit requirements.

How Much Money Does the Homeowner/Borrower Receive?  Three factors determine the amount of eligible equity which may be converted to cash.  They are:

  1. Age of the youngest borrower
  2. Value of the home
  3. Current interest rate

The older the borrower, the higher the value of the home, the more money the borrower gets.

How Safe are Reverse Mortgages?  The homeowner/borrower retains ownership of the home and the lender never owns your home.  The loan is non-recourse and protects heirs from taking money out of their pocket for repayment of the loan.

Will the Homeowner/Borrower Ever be Forced Out of Their Home?  NO!  As long as one of the borrowers continues to live in the home, adequate property insurance is maintained, the real estate tax is paid annually, and the home is kept in good condition, just like any traditional mortgage.

How Can a Homeowner/Borrower Receive the Money?  The choice is completely up to the borrower.  Receive it all in a lump sum, in regular monthly payments, or place the money in a growing line of credit.  Or combine all three options.

Who Gets the Home when the Homeowner/Borrower Dies?  The estate will receive the home upon the borrower's death, just like any traditional home loan.  Heirs have the choice of either keeping the home and paying the lender of selling the home and using the proceeds to pay the Reverse Mortgage.  All remaining equity is paid to the estate after the Reverse Mortgage is satisfied.

Will the Reverse Mortgage Effect the Homeowner/Borrower's Taxes or Social Security?  NO!  Equity received from a Reverse Mortgage is a loan and not income and is NOT subject to income tax and will NOT affect social security benefits or Medicare.

American Reverse Mortgage located in Ocala, Florida - toll free (888) 370-6620 will send a free information package tailored to meet specific financial needs with no obligation.  Their website has convenient links to other affiliated associations as well as providers of Reverse Mortgages in other states.

American Reverse Mortgage is seeking people nationally for Reverse Mortgage Advisor positions.  Call (888)370-6620 for complete details.

Jim Johnstone, Real Estate Attorney in McCaysville, Georgia serving the Blue Ridge area of the North Geogia Mountains is a Reverse Mortgage Advisor and can be contacted at 706-455-1012.

 

About the Author
Donna Yates utilizes her corporate experience of 30 years combined with her Real Estate experience in order to help customers/clients with investment opportunities, second homes, vacation homes, meeting any real estate need. Donna contributes to several Web Blogs which focuses on the Blue Ridge Mountains, North Georgia Real Estate Market, as well as other topics important to North Georgia. View great mountain properties for sale.

 

Donna Yates
Associate Broker, GRI
706-633-0644 Mobile
Serving North Georgia Mountains and Metro
Metro Brokers - Better Homes and Gardens Real Estate
706-515-7500 Office

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Comment balloon 23 commentsDonna Yates • August 08 2007 09:09PM

Comments

Donna, Thank you for an accurate post about Reverse Mortgages.  In high-cost areas, a Reverse Mortgage can represent a significant difference in the quality of life Senior Citizens experience in retirement - without the need to sell their home to attain it.  Many Seniors refuse to consider assistance from family members and a Reverse Mortgage helps them utilize the primary asset that their hard work and dilligence paid for.

Posted by Wendy Cutrufelli, Contra Costa Realtor (Alain Pinel Realtors) almost 10 years ago
Donna, thanks for the post... Now I feel confident in explaining this to my grandmother...
Posted by Justin Hayward, Just Call Justin! (TLC Realty, LLC) almost 10 years ago
Way to break it down, Donna!  The reverse mortgage is a great product - I have helped several people (including family) pay off debt, get rid of their house note, and even get a small check monthly.  Can't say enough about them!
Posted by Gareth Bourriague, Benchmark Mortgage (Benchmark Mortgage of Louisiana) almost 10 years ago
To be honest, I've been scared of reverse mortgages ever since I had a seller who barely had enough left to cover her sellling costs when she became incapacitated and had to go to a nursing home.  This does a good job of explaining the product, and maybe I'll have to open my mind again to the potential.
Posted by Margaret Woda, Maryland Real Estate & Military Relocation (Long & Foster Real Estate, Inc.) almost 10 years ago

Wendy:  I was probably the most cynical of all about the Reverse Mortgage because of my own parents.  I would never want to see them taken advantage of after all of their years of very hard work.  Attending a workshop (and even in the workshop) I was still skeptical but as I investigated further, I really do see the good in this for seniors with a need.  Thank you for your comment.

Justin:  I am happy to know the information in this post was helpful to you.  I plan to discuss it with my own parents but I had to make sure it was something I could trust.  Still, I am a very cautious person, mistaken sometimes for pessimism, but it's really positive thinking with a lot of reality checks (got that one from Donald Trump).  I advise each person to do their own research in addition to the informaiton in this post and be leary of the info on the internet.  One good thing that is done in this process is they will send a HUD counselor qualified in this area to thoroughly counsel seniors.

Gareth: My mind was closed shut when I first heard about this.  I would not give James Garner or Robert Wagner an extra second, I scrambled for the remote and turned the channel as fast as I could, absoultely refusing to hear anything about it.  Then a local attorney had a workshop and I guess my mind opened just a tiny bit since I decided to go.  Mostly, I thought perhaps, as a Realtor and my market is made up of seniors, that I should be ready to discuss this topic with some degree of knowledge if it came up and I figured my suspicions would be proven to be correct so that's really why I went to the workshop. But it did the opposite and I had to write the post.  I am glad to see that it has bee helpful.

Magaret - my dear Margaret - I would only be repeating myself from above so let me just say that you are a blessing and a treasure and I thankyou so much for taking the time to read my posts.  Your opinion means a great deal to me.

Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago

i believe one of the most important features of the reverse mortgage process is the need for the borrowers to receive independent 3rd party counseling, before i can proceed with their application. the counselor is going to provide other options and answer any/all questions. a certificate of completion is required.

i have told everyone, be it a senior, their family, or their advisors that 2 of the options are to do nothing, or nothing at this time, in regards to taking a reverse mortgage.

it's a great program and like any mortgage program not for everyone. 

Posted by Jay Beckingham, "I love first time homebuyers" (Eagle Home Mortgage) almost 10 years ago
Thank you very much for sharing, I need to do more research on the program since the demand should increase over time.
Posted by Shane Sarae almost 10 years ago
just for the recors...I did my first reverse mortgage in 1983... not new at all and fairly tried and true
Posted by Perrin Cornell, Broker, ABR, VAMRES (Century 21 Exclusively, Wenatchee, WA) almost 10 years ago

Jay:  I like the options you mention and I think Reverse Mortgages is trying to overcome a stigma from way back.  It does appear to have merit and worth checking into as far as that goes. Thank you for your comment.

Shane: I expect the demand to increase over time as well as more and more baby boomers reach 62 and older.  I thought I better get a jump on it.  Thank you for your comment.

Perrin: They mentioned in the workshop that reverse mortgages have been around and that's where some of the stigma is coming from.  Congress passed legislation in 1988 regarding the HECM where there are no payments; non-recourse and tax free line of credit.  I'm not familiar with Reverse Mortgages beyond what I have recently learned.  Thank you for your comment.  It sounds like you had success even way back with these.

Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago

Thanks Donna for good info.  We get a lot of excellent articles on reverse mortgages in AR - but they are hard to find without a subject search.  There is a reverse mortgage group you may wish to post to.

The primary criticism I hear of reverse mortgages is that they have high up front fees.  I believe that this is a different product than a traditional mortgage and comparison to  traditional fees is not useful.  The government programs (Home Equity Conversion Mortgage or HECM) have a federal insurance component that guarantees that the debt to be repaid in later years does not exceed the resale value of the house.  Monthly interest and fees are accumulating, after all, so that, unlike a traditional mortgage, the amount due when repaid will be more than the original amount borrowed.  The insurance assures the borrower that they are never upside down in the loan - no matter how long they live in the house.  The premium for this insurance is a component of the fees that does not appear in a traditional mortgage product.  

New major players are entering the reverse mortgage market - such as Bank of America and Nationwide.  Competitive pressures will, I believe, reduce the fees somewhat as new products are introduced.  But expect the fee structure to remain high, compared with traditional loans - because they are a very different product.  The reverse mortgage is not for everybody but can be a significant benefit for the right situation.  The reverse mortgage provides cash in a lump sum or monthly cash flow - and eliminates monthly mortgage payments.  Two significant benefits to seniors on a tight budget with insufficient retirement income.  It can make the difference in allowing seniors to continue to live in their home - or can let them sell their home to downsize and help to purchase a new retirement home for less cash out of pocket (maintaining more of the sale proceeds of the house they sell in their investment accounts).  

For the right situation the reverse mortgage can be an excellent planning tool.  Naturally, I would advise anyone one to be sure to talk with their professional tax and estate and financial planning folks and get the answers to their questions.

 

Posted by Ted Baker, MidFloridaMediation.com (Carmody and Associates LLC) almost 10 years ago
Ted:  Great information and I will keep this with my file.  I really want to know all there is to know about this type mortgage, the good and the bad.  You've made some outstanding points that I did not know about.  But I totally agree that this type mortgage is not for everyone and given the right situation could really help some seniors out.  Thank you very much for taking the time to provide greater clarification.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago
Hello, Donna!  Very informative and easy to understand.  I've often thought of this program but I haven't been asked about it so I've not done any research.  Thanks for sharing!
Posted by Yolanda Hoversten, Broker - O Fallon, IL Real Estate (Berkshire Hathaway HomeServices Elite Properties) almost 10 years ago
Yolanda: My market has a lot of young seniors but as baby boomers age, I expect this to come up a lot more.  I thought I should do my homework.  Did you know there was a group dedicated to Reverse Mortgages?  I had no idea.  Check out Margaret Woda's blogs on Active Rain when you can.  She is wonderful.  Thanks for stopping by.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago

 Donna, thank you for a thoughtful, well written post!  I had already added you as an associate, but now I have to go back and add you to my group AR Educators!

Mike in Tucson

Posted by Mike Jones, Mike Jones NMLS 223495 (SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) ) almost 10 years ago
Mike:  You give me too much credit but thank you for the associate add and whether I belong in the AR Educators is highly questionable.  Thanks for reading my post and taking time to leave a comment. 
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago
Michael:  Thank you for reading my post and leaving a comment.  It's nice to know what other members think.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago
I also USED to be against Reverse Mortgages, but after learning so much more, am a big proponent in MOST instances.  I would still say, the original private Reverse Mortgages programs were a rip-off, and I havn't seen them lately, so do not know if they are still around.  If they are I would never recommend them to anyone, but the majority of HUD back programs that are out there today are a tremendous benefit to seniors!  BTW, the loan balance can technically exceed the home value, BUT the mortgage insurance that is required will cover that shortage so the borrower or their heirs are not forced to pay this shortage when the loan is satisfied.
Posted by Ronald Gillis, CNSA Southwest Florida. Notaries, Port Charlotte, 941-7-NOTARY (Southwest Florida Notaries (Mortgage Notary Signing Agent)) almost 10 years ago
Ronald:  Thankyou for your comment.  I was very skeptical of the Reverse Mortgage at first and think some of my skepticism was because of the original programs you mentioned.  Still, I hope seniors will be very careful and fully understand what they are getting into or at least a loved one or a trusted friend will guide them.  I think this loan option works well for specific situations.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago
Great info Donna.  I have a vague understanding of reverse mortgages, and didn't realize that counseling was required for borrowers to get a reverse mortgage.  I think that's great, because I would hate to see some seniors get taken advantage of.
Posted by Tiffany Wilson, The Costa Rica Real Estate Expert (Compass Properties - THE Costa Rica Real Estate Expert) almost 10 years ago
Tiffany:  I totally agree with you and I was very skeptical when I attended a workshop but was surprised in a postive way when I found out that the reverse mortgage can truly help some seniors in specific situations.  One thing I thought was really neat for markets like mine and yours, where we specialize in second homes, vacation homes, etc.  is seniors can take the money on a reverse mortgage and buy another home.  Thank you for leaving a comment.  I appreciate your feedback.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 10 years ago
Very informative and well written.  Thank you!
Posted by Joyce "Joy" Mahaney Brewster (High Profile Realty) over 9 years ago
Joyce:  Thank you for your comment.  This has become a very interesting topic for me to explore.  I think we will see more of these in the future as baby boomers age.
Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) over 9 years ago

Tamber: Thank you.

Posted by Donna Yates, Blue Ridge Mountains (BHGRE - Metro Brokers) almost 6 years ago

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