Unfortunately, family and friends still promulgate wrong information about this program. Sometimes, the attitude of family and friends will prevent those whose problems can be solved by obtaining a reverse mortgage, from going forward. It is a sorry sight to watch this happen. Let’s clear up these misconceptions once and for all.
a. The borrower must make monthly payments. THE TRUTH: The borrower never makes a monthly payment.
b. The bank owns the house. THE TRUTH: The borrower continues to own the home. The bank does not own the home.
c. The heirs will be responsible for repaying the loan. THE TRUTH: A reverse mortgage loan is a non recourse loan. This means that the heirs are not responsible for repaying the loan. In the event the sale proceeds do not cover the amount due on the mortgage, the bank has to accept this lesser payment as payment in full.
d. Closing costs are too expensive. THE TRUTH: While the actual closing cost figures may be a little higher than typical FHA closing costs, it is important to remember that these costs can be financed. The main reason for this higher cost is that the HECM(Home Equity Conversion Mortgage) reverse mortgage plan requires 2% rather than 1.5% mortgage insurance. The FANNIE MAE reverse mortgage is less expensive and is more conservative in the amounts a senior can realize. Generally, the only upfront fee that is out of pocket is the appraisal fee. Also keep in mind that a senior is obtaining a loan that does not require income, asset or credit underwriting approval and they do not have to make monthly payments. Question: If you had an opportunity to get a loan and didn’t have to make a payment during your life, would you consider it ? Well, this is an opportunity for seniors to regain their independence and dignity. When you focus only on closing costs and the TALC (similar to an APR-annual percentage rate), you are missing the bigger and more important picture.
e. The loan is due & payable when the first borrower dies. THE TRUTH: The loan is not due and payable until the last surviving borrower dies, sells the home or leaves the residence.
f. Benefits received from Social Security, Medicare and Medicaid are affected. THE TRUTH:
These benefits are not affected by a reverse mortgage loan.
g. Reverse mortgages are only for seniors that are poor, or for seniors that find
themselves in dire financial situations. THE TRUTH: Seniors in every economic stratum and from all walks of life, are taking advantage of the benefits offered by reverse mortgages.
h. Reverse mortgages offers no benefit to those that want to leave their homes to their children mortgage free. THE TRUTH: Seniors can enjoy the cash flow that is created by reverse mortgages and they can still leave their home mortgage free to their children by combining guaranteed death benefit life insurance with the reverse mortgage. In the mean time, the seniors are living a life complete with dignity, while their children are relieved of the financial responsibility for their care.
i. Reverse mortgages are not necessary since a senior can always do Medicaid planning to pay for the exorbitant costs of long tern care. THE TRUTH: Medicaid planning can be risky in that it involves transferring assets out of a person’s name to children or to a trust. This generally puts the money out of reach of the parent and, in the case of outright gifts to the children, exposes the money to claims by creditors of the children. The money can also become an issue when children divorce. It is important to note, that the government has been trying to restrict Medicaid eligibility for years. There is no guarantee that the program will remain viable in the future.
j. A senior must enjoy good health to qualify for a reverse mortgage. THE TRUTH: Unlike long-term care insurance, reverse mortgages are not medically underwritten. One of the most pressing issues & questions facing our growing senior population is how to effectively finance the out of control costs of long term care. A reverse mortgage can help accomplish this goal. These proceeds can be used either as the as the sole payment source for an aide or as a supplement to the hours received for home care benefits through Medicaid. For example, if Medicaid authorized twelve hours of care a day but the individual actually needs care twenty four hours a day to safely remain in the home, the proceeds of a reverse mortgage can be used to pay for the additional twelve hours of care a day. Taking into account all the reverse mortgage variables, a senior may very well be able to live their final years at home and avoid nursing home placement. This allows seniors to maintain their dignity and control over their long-term care. Although Medicaid generally considers an individual’s income & assets in determining a person’s eligibility, the good news is that the proceeds of a reverse mortgage are not counted under New York State law as a countable resource for Medicaid purposes.
Reverse mortgages can literally change a senior’s life. Financially it puts them on a new path. Emotionally, it provides them with dignity and independence to live their dreams. Seniors know that money is not the most important thing. They also know that lack of it effects everything that is important.
2002 Dennis Haber
