Mortgage and Refinancing Information Channel:
We would like to thank the local libraries, schools, and universities for recommending students to visit us when doing research on any of our information topics.
Reverse Mortgages - A Tax Free Income For Senior Citizens
I fully realize if it sounds too good to be true, it probably is and There Is No Such Thing As A Free Lunch (TANSTAAFL) immediately jumped into your head when you read the title of this article. However, if you are 62 or over, you may have just found the goose that laid the golden egg.
A reverse mortgage is exactly what the name implies. Rather than you paying a monthly sum of money to a mortgage company, a mortgage company pays you. There are three types of reverse mortgages and all have the same eligibility requirements.
You must be at least 62, live in, and own, your home and sign a contract. You must also have equity in your home and the inherent interest rate is based on what the lender is currently charging (more about this later) on non-reverse mortgages. The lender, by the way, will also have your property appraised for which you may or may not be charged.
There are no income restrictions such as those imposed by Social Security and most are tax free since they do not involve additional features such as an attached annuity. They also do not affect your social security benefits nor your Medicare entitlements.
This article discusses only those mortgages without additional features. Should you wish to know more about reverse mortgages with additional features, consult with a competent tax professional to reduce the chances of running afoul of tax laws.
The FTC's website, http://www.ftc.gov/bcp/online/pubs/homes/rms.htm has an excellent article on reverse mortgages but it also does not discuss mortgages with additional features. Another reason to consult with a tax professional.
This tool called reverse mortgage is actually a loan, hence an interest rate, which allows senior citizens, or as some say, the elderly, to convert part of their equity into cash without having to sell their home. Because it is a loan "in reverse" you are receiving a monthly sum and not paying a monthly amount while you live in your home.
However, this loan must be repaid and repaid with interest should you sell, die, no longer live their as your principal residence or reach the end of the pre-selected loan period. You remain responsible to pay real estate taxes, insurance and all attendant maintenance expenses which, of course, you would have to pay with, or without, a reverse mortgage.
With this explanation, the picture becomes more focused, right? You enjoy a monthly sum, tax free and non-repayable until a date sometime in the future, while remaining in your home. As close to a win-win situation as one can get in this day and age.
It doesn't take a rocket scientist to realize anyone who is cash poor but house rich should at least investigate this tool. However, like any other instrument involving your signature on the dotted line involving financial obligation, you must have some preliminary information.
I mentioned there are three types of reverse mortgages. The first is the single purpose reverse mortgage. These are offered by some sate and local government agencies and nonprofit organizations.
They may not be available in your area. Call your county's Department of Senior Services. Their phone number is in the white pages under the listing for your county.
Single purpose means exactly that. The proceeds may be used for only the purpose specified by the lender and generally are only made to people with low or moderate incomes. If you call your county, be sure to ask if their reverse mortgage is a single purpose and what are the limits.
The second type of reverse mortgage is called a Home Equity Conversion Mortgage (HECM). The federal government insures these mortgages and they are backed by the Department of Housing and Urban Development (HUD). The up front costs are generally high especially if you plan on staying in your home for a short period of time but they carry no income or medical restrictions and can be used for any purpose.
HECMs also require all applicants to meet with a counselor from an independent government approved housing counseling agency. The FTC says, "The counselor must explain the loan's costs, financial implications, and alternatives. For example, counselors should tell you about government or nonprofit programs for which you may qualify, and any single-purpose or proprietary reverse mortgages available in your area."
An additional benefit of an HECM mortgage is the nursing home clause. Should a borrower have to move out of her home and into a nursing home or other medical facility, she has up to 12 months before the loan becomes due. This enhances financial planning.
The third type is called a proprietary reverse mortgage. These are private loans backed by the companies offering them. In other words, they are NOT government insured. Like HECMs, the upfront cost could be high for a proprietary reverse mortgage.
A reverse mortgage, cost wise, is like a non-reverse mortgage. The lender usually charges loan origination fees, closing costs, insurance premiums (for insured loans) and service fees which are all set by the lender.
Fortunately, like non-reverse mortgages, the federal Truth In Lending Act (TILA) applies to reverse mortgages. This means the lender MUST disclose the costs and terms of the reverse mortgage you are considering.
The annual percentage rate (APR) and payment terms must be prominently displayed and not in the fine print. If you choose a credit line as your loan, lenders must tell you the charges related to not only opening but using this credit account.
Another word about the interest rate since it too mirrors the non-reverse mortgage. Just as with a non-reverse mortgage, an interest rate can be fixed or variable with variable rates tied to a financial index. This means the rate will change as the index changes.
TILA forces the lender to disclose this information. TILA does not force the lender to tell you the reverse mortgage may, or may not, use up all of your equity. If a "non-recourse" clause is included in the contract, and most have them, you must be told you will not owe more than the value of your home when the loan is repaid. This is a good thing.
Of the three, the HECM is the most flexible. It lets you select the way you receive your money. For example, you can receive fixed monthly cash advances for a specified period or for as long as you live in your home. Or, if you choose, you can receive a line of credit.
A line of credit allows you to draw on the loan proceeds when you want and how much you want. The HECM allows a combination of the two choices. You can receive a monthly payment plus a line of credit.
The key is to read and understand every clause in the contract before signing and do not be afraid to ask questions about what you don't understand. Don't let a huge monthly payment cloud your judgment and decision making ability.
Both HUD and the FTC have toll free numbers and websites to help you in making an informed decision. HUD can be called at 1-888-466-3487 with their web address at: http://www.hud.gov/offices/hsg/sfh/hecm/rmtopen.cfm while the FTC can be called at 1-877-382-4357 with their web address at: http://www.ftc.gov/credit
After reading the above information you may have decided the goose with the golden eggs is really a vulture waiting to pounce on your carcass. Or, you may have decided the goose's eggs are worth your time and attention. Either way, you are now a more informed consumer.
Tom Koziol is the Executive Secretary for Senior Outreach Ministries. Visit http://www.senior2senior.org and download their free senior caregiver manual.
Today's MORTGAGE-REFINANCING NEWS updated Sat. May / 28 / 2022
Today's best mortgage refinance deal? 15-year rates hold steady for third straight day | May 27, 2022 - Fox Business
Today’s 10-,15-year mortgage refinance rates sink to lowest levels in more than 30 days | May 25, 2022 - FOX 6 Milwaukee
Today’s 10-,15-year mortgage refinance rates sink to lowest levels in more than 30 days | May 25, 2022 FOX 6 Milwaukee
Today's mortgage refinance rates rise – May 11, 2022 Bankrate.com
The Mortgage Refinance Rush Has Cooled, But HELOCs Can Unlock Housing Wealth - Hawaii Business Magazine
The Mortgage Refinance Rush Has Cooled, But HELOCs Can Unlock Housing Wealth Hawaii Business Magazine
When to Refinance Your Mortgage Business Insider
Can You Refinance a Reverse Mortgage? Investopedia
What Are Mortgage Points? A Quick Guide Zing! Blog by Quicken Loans
Today's Mortgage, Refinance Rates: May 11, 2022 | High Inflation Means Rates Will Likely Stay Elevated - Business Insider
Today's Mortgage, Refinance Rates: May 11, 2022 | High Inflation Means Rates Will Likely Stay Elevated Business Insider
Personal Loan vs. Home Equity Loan: How to Choose the Right One for Your Financing Needs - NextAdvisor
Personal Loan vs. Home Equity Loan: How to Choose the Right One for Your Financing Needs NextAdvisor
A Wells Fargo exec answers questions over diversity controversies Business Insider
How Common Is Appraiser Racial Bias—an Update American Enterprise Institute
Today's mortgage refinance rates fall – May 23, 2022 Bankrate.com
Refinance Calculator Bankrate.com
Trends in Mortgage Refinancing Activity Freddie Mac
New mortgage refinance programs from Fannie Mae and Freddie Mac are expanding to reach more homeowners - CNBC
New mortgage refinance programs from Fannie Mae and Freddie Mac are expanding to reach more homeowners CNBC
Today’s mortgage refinance rates: Steady shorter terms offer best savings chances | March 17, 2022 - Fox Business
Today’s mortgage refinance rates: Steady shorter terms offer best savings chances | March 17, 2022 Fox Business
How long does it take to close on a house? Bankrate.com
Today's Mortgage, Refinance Rates: May 13, 2022 | Rates Increase for the Second Week in a Row - Business Insider
Today's Mortgage, Refinance Rates: May 13, 2022 | Rates Increase for the Second Week in a Row Business Insider
Today's Mortgage, Refinance Rates: May 16, 2022 | Rates Have Increased Over 2% Since Last Year - Business Insider
Today's Mortgage, Refinance Rates: May 16, 2022 | Rates Have Increased Over 2% Since Last Year Business Insider
Today's Mortgage, Refinance Rates: May 17, 2022 | Rates May Be Moderating Slightly - Business Insider
Should you refinance your mortgage now? Consider these factors The Seattle Times
Jumbo Loan Refinance Guide | 2022 Rates and Guidelines The Mortgage Reports
3.8 million homeowners would still benefit from refinancing amid rise in mortgage rates, says Black Knight - Fox Business
3.8 million homeowners would still benefit from refinancing amid rise in mortgage rates, says Black Knight Fox Business
How to refinance your mortgage, a step-by-step guide The Washington Post
Still time to lock in a lower rate: Today's 30-year mortgage refinance rates fall | Feb. 9, 2022 - Fox Business
Still time to lock in a lower rate: Today's 30-year mortgage refinance rates fall | Feb. 9, 2022 Fox Business
Survey finds 74% of homeowners haven’t refinanced despite historically low mortgage rates - Bankrate.com
Survey finds 74% of homeowners haven’t refinanced despite historically low mortgage rates Bankrate.com
Mortgage and real estate news this week: Affordability squeeze tightens, and refinancing must-knows - Bankrate.com
Mortgage and real estate news this week: Affordability squeeze tightens, and refinancing must-knows Bankrate.com
Texas' Best Mortgage Lenders & Current Mortgage Rates | US News Loans - U.S News & World Report Money
Texas' Best Mortgage Lenders & Current Mortgage Rates | US News Loans U.S News & World Report Money
3 Reasons to Refinance Your Mortgage Despite Rising Rates The Motley Fool
Mortgage Rates Increased to 3.27% Last Week. Here’s What Experts Forecast Amid Rising Inflation and COVID Cases - NextAdvisor
Mortgage Rates Increased to 3.27% Last Week. Here’s What Experts Forecast Amid Rising Inflation and COVID Cases NextAdvisor
Today's Cash-Out Refinance Rates Fox Business
After Losing Her Home in a Fire, This Teacher Needed a Fresh Start. A Mortgage Refinance Helped Her Do It - NextAdvisor
After Losing Her Home in a Fire, This Teacher Needed a Fresh Start. A Mortgage Refinance Helped Her Do It NextAdvisor
Cash-In Refinance: What It Is And If It's Worth It Zing! Blog by Quicken Loans
Cash-out refinance vs. no-cash-out | What's the difference? The Mortgage Reports
15 of the best mortgage refinance companies for 2021 Fox Business
VA Loan Refinance Options | 2022 VA IRRRL and Cash-Out The Mortgage Reports
Plunging Mortgage Rates Mean Refinancing Is Back on the Table for 2 Million Borrowers - The Motley Fool
Plunging Mortgage Rates Mean Refinancing Is Back on the Table for 2 Million Borrowers The Motley Fool
Mortgage Refinance As An Inflation Hedge Surfky.com
Best mortgage refinance lenders in 2022 Bankrate.com
Mortgage demand falls to nearly half of what it was a year ago, as interest rates continue to rise - CNBC
Mortgage demand falls to nearly half of what it was a year ago, as interest rates continue to rise CNBC
Can You Refinance A VA Loan? Zing! Blog by Quicken Loans
Mortgage refinance: Everything you need to know Fox Business
What Is A CEMA Loan? A Quick Guide For NY Homeowners Zing! Blog by Quicken Loans
Unemployed and unable to refinance Marketplace
Home Mortgage Refinancing Disparities During the COVID-19 Pandemic: Insights for Delaware, New Jersey, and Pennsylvania - Philadelphia Fed
Home Mortgage Refinancing Disparities During the COVID-19 Pandemic: Insights for Delaware, New Jersey, and Pennsylvania Philadelphia Fed