Understanding Reverse Mortages
Wednesday - August 27, 2008
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By Percy Ihara Reverse
Mortgage Specialist for Financial Freedom
For the Families of Seniors
A reverse mortgage could be an ideal way for your parents to benefit from the wise investment they made in real estate perhaps decades ago. If you are the son or daughter of a senior who is age 62 or older, you should understand the facts about reverse mortgages because many parents consult with their children about estate planning.
Get money without moving.
A reverse mortgage can help your parent(s) create a new source of tax-free* money without having to sell their home. In fact, they can stay in the home they love for as long as they’d like.
A reverse mortgage allows seniors to tap into money they’ve earned in the form of home equity, and avoid having to depend on children or relatives for financial assistance.
Keep title to the house.
Your parents retain full title to their home and have no risk of losing the home to the reverse mortgage lender. And no matter what happens to the housing market, your parents can never owe more than the value of their home when it is sold.
Over 350,000 Americans have already benefited from reverse mortgages. The fact is that HECM reverse mortgages are government-insured loans and many safeguards are in place to protect seniors from unethical lending practices.
If your last-remaining parent passes away while living in the home, you, as the heir(s), simply pay off the reverse mortgage loan balance in full. If you- or a sibling or other relative-want to keep the home in the family, you can refinance or use other assets to pay for it. If no one in the family is interested in keeping the home, it can be sold to repay the loan. Any money left over goes to the estate to be shared according to your parents’ last wishes.
How the Reverse Mortgage Program Works
Like any other financial transaction, getting a reverse mortgage involves a number of steps designed to protect both you and the lender..
1. Initial Discussion
The first thing we like to do is talk to you, either over the phone or in person, about whether a reverse mortgage is right for you. We talk about the pros and cons of the program, how it works, how much money you might receive and anything else you’d like to know about. Then you decide whether you want to take the next step.
If you decide that a reverse mortgage is the right choice, you receive independent counseling from a certified, HUD-approved counselor to make sure that you have had all your questions answered and that there’s been no confusion. It’s a protection device that the government has built into the process of obtaining a reverse mortgage.
Then we help you arrange for an appraisal to determine the objective market value of your home, and whether any repairs will be required to meet Federal Housing Administration guidelines.
In many cases an inspection is required to make sure that the home is structurally sound and that there’s no extensive termite or dry rot damage.
After the appraisal and inspection reports are completed we go through all the normal processing procedures that you might find in any mortgage.
The final step of the program is the closing where you receive the money, or proceeds, from your reverse mortgage. You can choose to receive the payment in one of three ways: as a lump sum, as a monthly payment or as a line of credit.
Then it’s up to you: pay bills, fix up the house, help a family member, or use the money to enjoy your life.
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