The Reverse Mortgage Book: Everything You Need to Know Explained Simply

Holcomb

The Reverse Mortgage Book: Everything you Need to Know Explained Simply

Copyright © 2008 by Atlantic Publishing Group, Inc.

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ISBN-13: 978-1-60138-213-9

ISBN-10: 1-60138-213-8

Library of Congress Cataloging-in-Publication Data

Holcomb, Cindy, 1965-

The reverse mortgage book: everything you need to know explained simply / by Cindy Holcomb.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-1-60138-213-9 (alk. paper)

ISBN-10: 1-60138-213-8 (alk. paper)

1. Mortgage loans, Reverse--United States--Handbooks, manuals, etc. I. Title.

HG2040.5.U5H647 2008

332.7’22--dc22

2008016617

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Table of Contents

Acknowledgements

Introduction

Chapter 1: What Is a Reverse Mortgage?

Chapter 2: Home Equity Conversion Mortgage

Chapter 3: Fannie Mae Home Keeper Loan

Chapter 4: Financial Freedom Cash Account

Chapter 5: CHIP Reverse Mortgage

Chapter 6: Types of Payment Plans

Chapter 7: Costs Involved with the Reverse Mortgage

Chapter 8: Borrower Protection

Chapter 9: Are You and Your Home Qualified?

Chapter 10: Determining Your Needs

Chapter 11: Adult Children and Reverse Mortgages

Chapter 12: Available Resources

Chapter 13: Putting Together Your Support Team

Chapter 14: Step-by-Step Through the Loan Process

Chapter 15: Money in Hand

Chapter 16: Frequently Asked Questions

Chapter 17: Common Mistakes

Chapter 18: Current News and Legislation

Chapter 19: Special Situations

Appendix: Reverse Mortgage Counselors

Bibliography

Author Biography

More Great Titles from Atlantic Publishing

Acknowledgements

Reaching any important point in life is a group effort. If you stop to think about it, there is always someone to thank for contributing to what you have become and what you have achieved. Success begins at birth and is achieved when you understand that each encounter has led you to this point and are willing to acknowledge the people that have made a difference in your life.

I would like to thank Angela Adams at Atlantic Publishing for giving me this opportunity, and for all the advice and help I have received throughout the writing of this book.

Thanks to my husband, Keith, and my beautiful daughters, Shonda and Rebecca, for their love and support throughout this project. Thanks for all the glasses of iced tea delivered to my desk and for just being here for me. Thanks to my daughter, Leann, for believing in me and encouraging me always. And, thanks to my granddaughters, Karmen and Riley, for being the precious angels you are.

A very special thanks to my parents, Richard and Trena Williams, for giving me the kind of childhood that every child deserves and always allowing me the freedom to be all that I could be. To my Mom: Thanks for always encouraging me to reach for more and for teaching me that learning is the most exciting part of life, for taking teachers to task when they couldn’t understand my need to know the hows and the whys rather than taking the facts at face value. I love you!

To my Dad: Although you are not with me on this earth, you are always with me in spirit. Thank you for always supporting me and for always being my solid ground as I travel through this shaky world. Thank you for teaching me the lessons about love and family that I will carry with me throughout my life. I love you!

To my grandmother, Gladys Watson, who, with only a third-grade education is the most intelligent person I have ever met: Thank you for teaching me that learning is not only for the classroom — that life is all about learning. Thank you for always challenging me and teaching me that words are more than just letters — words are an expression of life.

To my grandmother, Nellie Williams Wright: Thank you for always believing in me and encouraging my poetry. Thank you for being proud of each accomplishment — no matter how small it may be. I love you!

There are so many people who have made a difference in my life — Kelley, Buffy, and Ricky, who shared my wonderful childhood and were my partners-in-crime on many wonderful childhood adventures. Lisa Summers, my best friend since 7th grade — thanks for all the fun times we have had and for always being my biggest fan. Ryan Hinton, for encouraging me to take the first step and get out there and show the world what I have to offer. Herman Jensen, for letting me experience a reverse mortgage firsthand as I researched and wrote this book. My mother-in-law, June Holcomb for everything you do to help me take care of the girls when I am writing. And, my friends at Online Business Alliance — thanks for always supporting me and encouraging me to reach for more.

Table of Contents

Introduction

The reverse mortgage has been around for a long time. As a matter of fact, the first reverse mortgage loan was made in 1961 by the Deering Savings & Loan, in Portland, Maine. Imagine that one simple act could have changed how millions of senior citizens viewed their retirement years! Of course, that was not the plan at all. The only goal Nelson Haynes had in mind was to help the widow of his high school football coach find a way to survive after the loss of her husband. Can you imagine the looks on the faces of Haynes’s colleagues when he told them he would like to issue a loan that did not have to be paid until the homeowner died? That was simply unheard of. How does a company make a profit if they issue loans that do not come with monthly payments? Somehow, Haynes convinced his colleagues that the loan would eventually benefit the company, and Nellie Young became the first person to benefit from the terms of a reverse mortgage. Nelson Haynes became the man who lit the fire that has rescued many senior citizens and offered them a less stressful and worry-free retirement.

Slowly, the idea of the reverse mortgage began to take shape, and it was not until the 80s that the reverse mortgage drew national attention. The first federal statutory recognition of reverse mortgages occurred in 1982 with the passing of the Garn-St. Germain Depository Institutions Act. The act opened the doors for what has become one of the most popular loans for people over the age of 62 in recent years. Even as late as the 90s, there were few reverse mortgages taken out. With the real estate boom and the increased value of homes, the reverse mortgage became the go-to plan for elderly people in the early 2000s and has been on the rise since, with some years showing an increase of as much as 109 percent over the previous year. And it all started because one man had the heart to assist his former football coach’s widow.

What makes the reverse mortgage such a popular loan? The main point is there are no payments to make as long as a party to the loan lives in the home. For some, this is the answer to the retirement question that has puzzled people for many years. While raising a family, our earnings are used to provide a home for our family, and a quality education for our children to provide a better life for them. Often this does not leave much for our own retirement.

For many, a reverse mortgage is the solution. A reverse mortgage is a line of credit that allows people over the age of 62 to use the equity in their homes to finance their retirement, whether it be taking care of monthly expenses or taking a long-awaited trip abroad.

The reverse mortgage loan is repaid when the owner either sells the home or, at the owner’s death, the estate repays the loan. This is the major difference between a reverse mortgage and other types of home equity loans.

The reverse mortgage has offered a retirement solution for millions of Americans. As with most things, there are advantages as well as disadvantages. In this book, we take a detailed look at the reverse mortgage; the advantages and disadvantages; the qualifications of both the borrower and the home; and the effect a reverse mortgage may have on your heirs. You will be able to make an informed decision about whether or not a reverse mortgage is right for you.

CASE STUDY: Nancy Miller

Academy Mortgage, LLC

9748 Stephen Decatur Highway

Ocean City, MD 21842

www.oc-reversemortgage.com

e-mail: nmiller@academyloans.com

voice: (410) 213-9215

fax: (410) 213-7894

Nancy Miller — Reverse Mortgage Specialist

Many senior Americans are in the position that their homes have appreciated in value while their incomes have failed to keep up with rising healthcare costs, property taxes, and other expenses. A reverse mortgage is a safe, smart, and easy way to achieve financial independence and gain peace of mind. This program will enable the borrower to increase their current retirement income with no income or credit requirements, and best of all without making monthly payments.

Academy Mortgage has specialized in reverse mortgages since 1988. We specialize in reverse mortgages and understand that these programs can seem complicated. As a result, we will meet with our clients in the comfort of their own homes to review and explain all the information in detail.

For me, it is very rewarding to assist clients lighten their monthly financial burden or be able to accomplish a goal otherwise unobtainable. We have been able to provide peace of mind to many senior homeowners, and that is something you don’t get to do in many businesses. Probably the hardest part of my job is overcoming the misconceptions of the program. Once I sit down with them and give them the facts, they are usually surprised in a positive way.

For the families of seniors, they can rest assured that this program will enable their parents to live in their homes for the rest of their lives, retaining full title to their home and having the financial independence they need.

Table of Contents

Chapter 1

What Is a Reverse Mortgage?

A reverse mortgage is just what the name implies: a mortgage in reverse. When you take out a loan to buy a home, the money is used for the purchase of the home. Then you make monthly payments to repay the loan. At this point, you have no equity in your home. As you make monthly payments and the principal lowers, you begin to build equity in your home. Many times, a person sells his or her home to use the equity that has built up over the years. A reverse mortgage makes it possible for a person over the age of 62 to use the equity without giving up his or her home.

Reverse Mortgage versus Regular Mortgage

While both a reverse mortgage and a regular mortgage provide you with money for a certain purpose, there are some differences. Here is a comparison of the two types of mortgages:

As you can see, almost everything about the reverse mortgage is the opposite of a regular mortgage. In summary, a reverse mortgage allows someone over the age of 62 to take advantage of the equity built up in the home to pay monthly expenses, pay large bills (such as credit card bills that have high interest), or improve his or her lifestyle during retirement.

What a Reverse Mortgage Can Be Used For

A reverse mortgage can be used for almost anything the borrower wishes. Depending on the person’s financial situation, a reverse mortgage can mean the difference between having enough money during retirement, having enough money to live a carefree life during retirement, or having enough money to afford luxuries the person has long dreamed of. Each situation is different; therefore, each person has a better idea of where the money from the reverse mortgage is needed. Whether poor or rich, the main factor that ties people who get reverse mortgages together is that each person has more house than money. Most people want to stay in their homes as long as possible. In many cases, a reverse mortgage allows this to happen. Here are some of the ways a reverse mortgage can help a person during retirement:

A reverse mortgage can be used to pay off the existing mortgage on the home, if the amount is small enough to be covered by a portion of the home’s value.

A reverse mortgage can be used to make changes to the home that enable the person to remain in the home for a longer period, such as making the home wheelchair accessible.

A reverse mortgage can be used to pay off other debts, such as credit cards, store accounts, or a vehicle loan, thus freeing the borrower from monthly installments that take away from retirement funds.

A reverse mortgage can be used to help offset monthly living expenses.

A reverse mortgage can be used to improve a person’s lifestyle; for example, more dinners out and more trips.

A reverse mortgage can be used to purchase a summer or winter home, as long as the home does not become the borrower’s primary residence.

A reverse mortgage can be used to take a long-dreamed-of trip.

A reverse mortgage can be used as a safety net for emergency situations; for example, you can place the money you receive from a reverse mortgage in a savings account so it is readily available should an emergency arise.

A reverse mortgage can be used to offset the cost of long-term care, as long as the borrower remains in the home. For instance, funds from a reverse mortgage can be used to pay someone to sit with the borrower should he or she need round-the-clock care.

What a Reverse Mortgage Cannot Be Used For

As you saw above, a reverse mortgage can be used for almost anything the borrower wishes. There are, however, a few things that funds from a reverse mortgage cannot or should not be used for.

A reverse mortgage cannot be used to buy another permanent residence. The home, with the reverse mortgage attached, must be the permanent residence. If the borrower does not live in the home for a period of more than 12 months, the loan becomes due.

Funds from a reverse mortgage cannot be used to pay anyone that gave you advice during the process of obtaining the reverse mortgage. The government provides counselors who can assist you during the reverse mortgage process.

Advantages of a Reverse Mortgage

There are many advantages to a reverse mortgage. The most compelling advantage is that you are using your available assets rather than letting them sit unused. It does not help anyone to have more house than money when the funds tied up in the equity could be used to make life easier during the years when you may need it most. Another great advantage is you do not have to give up your home to use the equity you worked so hard to build up; ownership of the home remains in your hands, as does use of the home. As a matter of fact, one of the requirements of a reverse mortgage is that the home must be your primary residence.

Additionally, the use of the equity in your home is available without monthly payments. Simply refinancing your home causes you to have an additional monthly payment. You may use the funds from refinancing to consolidate your bills into one payment, but you still have a payment to make each month. With the reverse mortgage, you can do the exact same thing; in addition, you can eliminate those payments, and do so without gaining a mortgage payment. That fact alone can help you to increase your quality of life during your retirement years.

A reverse mortgage could also make it possible for someone to stay in his or her own home during a long illness by supplying the funds for round-the-clock nursing care or sitter fees. As long as the person on the deed is living in the home, the loan does not become due. Even if you do not require long-term care, other medical expenses can add up, and the funds obtained from a reverse mortgage can offset these costs and allow you to maintain the lifestyle that you are