This morning, Russ Van Arsdale with Northeast Contact discussed reverse mortgages also known as a home equity conversion mortgage.
It’s a financing arrangement for people 62 and older who own their homes outright or have a small mortgage. Instead of you making payments, a reverse mortgage allows you to receive money, based on the equity of your home.
Russ warned our viewers that the deal can be too good to be true.
He advises folks to log onto www.hud.gov and search for reverse mortgage.
Also, if you are approved for a reverse mortgage, you still need to pay for normal maintenance on the home, pay for property taxes and homeowners insurance, pay the mortgage insurance premium, and pay loan orientation and servicing fees and closing costs.
You’ll also probably pay a $125 feed for counseling with an organization approved by the U.S Department of Housing and Urban Development. That’s required to get a reverse mortgage, although the fee can be waived.
1/9/11 07:40 pm Updated: 1/9/11 07:44 pm
By Russ Van Arsdale
executive director, Northeast Contact
Reverse mortgages offer financial security to many seniors. But not all reverse mortgages are created equal, and those considering the option should think carefully about the ramifications.
Unlike a traditional mortgage requiring monthly payments by the borrower, a reverse mortgage uses the equity in a home as a source of income. Homeowners who are 62 or older can get cash payments or lines of credit by drawing on that equity.
It sounds simple, but some reverse mortgage agreements can be quite complex. Borrowers have to pay a fee to start the process, plus closing costs and compounding interest on the principal of the loan. The loan becomes due when the borrower dies, leaves the home for a year or longer, doesn’t maintain the property or fails to pay the property taxes or homeowners insurance.
The costs can add up fast. They can be crippling in cases where the borrower doesn’t fully understand the agreement. And some sellers use seniors’ precarious financial situations to try to sell them additional products that may not suit their needs.
Such cross-promotions are often used to sell seniors annuities or long-term care insurance. Some sellers pressure their potential customers to buy those products in order to get a reverse mortgage.
Salespeople can be downright misleading, not only on the potential risks of reverse mortgages but also in cross-promoting their products.
This has opened the industry to criticism from consumer advocates who say buyers are often sold financial products that don’t do them much good.
The federal Department of Housing and Urban Development requires counseling for people considering reverse mortgages. However, a recent report by Consumers Union, publishers of Consumer Reports, indicates such counseling often does not take place.
The Federal Reserve Board in August called for some big changes in the way reverse mortgages and associated products are sold.
The Federal Reserve Board changes would:
- Improve disclosure and make clearer all advertising of reverse mortgages.
- Ban specific unfair sales practices.
- Make consumers better aware of their right to rescind sales.
- Make sure consumers get new disclosures when re-negotiating an existing reverse mortgage.
Critics including Consumers Union say the Federal Reserve Board’s new rules don’t go far enough. They’d like to see better counseling, including a fair determination that a reverse mortgage is in the borrower’s best interest. There are even calls for sellers to have a fiduciary responsibility, meaning they could be held liable if they don’t act in the customer’s best financial interest. Continue reading