Randy Tripp, Creative Mortgage Consultants   760-839-6832

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                                                                        Advice For Children of Seniors

Should My Mom and Dad Get a Reverse Mortgage? 
You are referred to as the “Sandwich Generation.” You’ve got kids in or heading for college as well as retired parents. Wherever you look, all you can see is additional expenses. In the rough economy of the past few years--with home values and retirement savings down, government benefit programs threatened and longer life expectancy--many children of seniors are concerned about their parents being able to finance the remainder of their lives, even if they have been diligent about retirement planning. The vast majority of America’s seniors have their wealth in their home equity. And if your parents are struggling to meet their month-to-month expenses or to pay for additional health expenses, tapping into that equity may be the best solution for all of you. A Reverse Mortgage is a financial product that allows them to do just that. Whether or not a reverse mortgage is the right financial option for your parents is a very personal decision and based on many factors. In most cases, your parents will discuss this option with you before making their decision. You want to be prepared to give them the best advice. Here are some questions you most likely will want answered:

For help with more questions and talk to a knowledgable Loan Officer, call 760-839-6832, Randy Tripp.
 
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What is a reverse mortgage? 
A reverse mortgage is a loan available to people over 62 years of age that enables borrowers to convert part of the equity in their home into cash. The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed. Instead of making monthly payments to a lender (as with a traditional mortgage), the lender makes payments to the borrower. What do people use reverse mortgages for? Reverse mortgages were conceived as a means to help people in or near retirement who have limited income use the money they have put into their home to pay off debts (including traditional mortgages), cover basic monthly living expenses or pay for health care. There is no restriction on how a borrower may use their reverse mortgage proceeds. Will a reverse mortgage increase my parents’ monthly expenses? No. Borrowers are not required to pay back the loan until the home is sold or otherwise vacated. As long as they live in the home, they are not required to make any monthly payments towards the loan balance, but they must remain current on tax and insurance payments.

If my parents take a reverse mortgage, does the bank then own their home? 
No. With a reverse mortgage, the borrower always retains title to or ownership of the home. The lender never, at any point, owns the home even after the last surviving spouse permanently vacates the property. How much money can my parents expect? The amount of funds received depends on the age of the youngest borrower, the value of the homes, the interest rate and upfront costs. The older the borrower is, the more proceeds he or she can receive. The funds can be delivered to the borrower as a lump sum, as a line of credit or as a fixed monthly payment for as long as the loan is maintained. The borrower can also use more than one of these options, for example, take part of the proceeds as a lump sum and leave the balance in a line of credit. 

If when my parents move or die and the balance is more than the value of the home, am I then responsible? 
No matter how large the loan balance, your parents or you never have to pay more than the appraised value of the home or the sale price. This feature is referred to as non-recourse. If the loan balance exceeds the appraised value of the home, then the federal government absorbs that loss. The government pays for it with proceeds from its insurance fund, which the borrower pays into on a monthly basis.
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Will there be MI required?

Yes, the Mortgage Insurance Premium (MIP) is a fee paid by the borrower to the Federal Housing Administration (FHA), an agency of the federal government, to provide certain protections for both the lender and the borrower in a HECM reverse mortgage.  • For the HECM Standard, borrowers are charged an upfront mortgage insurance premium (MIP) equal to 2 percent of the Maximum Claim Amount, plus an annual premium thereafter equal to 1.25% percent of the outstanding balance on the HECM loan.  • The HECM Saver, however, was set up to reduce upfront fees. On the Saver, the upfront MIP is only .01% of the Maximum Claim Amount. The annual premium remains at 1.25% of the loan balance. The Federal Housing Administration collects the insurance premiums, which are placed into a mortgage insurance fund. The insurance fund guarantees borrowers that their funds will always be available to them, no matter what might happen with their lender. The lender is insured against loss if the value of the home at the end of the loan is less than the balance due. 
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Cautions about Reverse Mortgages.
As with any financial transaction-- be it a mortgage, a credit card or even a bank account--there are specific rules and obligations attached to reverse mortgages. Some of them are unique to this particular financial product. You may be accustomed to such items being buried in fine print. With reverse mortgages, both loan officers and counselors will explain these specifics to you as part of the loan process.  • Among the rules and obligations you need to be aware of are:  • Everyone listed on the deed of a home owned by someone seeking a reverse mortgage must be over 62 years old  • If your husband or wife, for instance, is under 62, their name cannot be on the title if you want to qualify for a reverse mortgage. Names can be added or removed from titles;  
If a name is removed from a title, that person is no longer an owner of the home. When the person whose name is on the deed passes, the surviving spouse or the heirs are responsible for paying back the reverse mortgage loan. The loan can be repaid out of other resources or by selling the home. If there is a balance from the sale of the home after the reverse mortgage is paid, it belongs to the heirs; • A reverse mortgage must be the only lien on a property. This means, in order to obtain a reverse mortgage you must pay off any existing traditional mortgage. You can use your reverse mortgage proceeds to pay off your traditional mortgage; • A reverse mortgage holder is responsible for staying current on their real estate taxes and homeowner’s insurance. If you go into arrears, you take the risk of being forced into default.
A reverse mortgage holder is responsible for maintenance of the home;• The home must be your primary residence, which means you must live there more than 183 days a year  • You are only permitted to live out of your home for a total of twelve months. This means, if you find yourself in, say, an extended care situation, or on an extended out-of-town work situation, you must approach your lender and discuss  • Loan originators are not permitted to require that you purchase other financial products (i.e., annuities, long term care insurance) as a condition for getting a reverse mortgage. If they do, you should report this to HUD or NRMLA.  
 
760-839-6832, Randy Tripp.