Since last observed, Reverse Mortgages have experienced some changes.
The fundamental idea hasn’t changed at all. Financially, you are making a bet that you are not going to leave your house for a nursing or funeral home before you have received enough payments to equal the value of your home. The government-approved bank is betting that you will.
Since our last look, the rules have changed a bit.
- The qualifying age, 62, is still the same. At 62, however, you’ll only receive about 30% of the qualifying amount of the home while a 95 year-old could receive 80%.
- The maximum amount that you can receive, which can vary based upon your geographic location, was increased from $417,000 in 2008 to $625,000 for 2009. Next year, it’s predicted to decrease because of the loss of home values.
- The origination fees that you can be charged have been capped at $6,000.
Despite these changes, the principles haven’t changed.
- Because this type of transaction entails a risk for the bank, you will never get the full value for your home. The best way to achieve that value is to eliminate the risk, i.e. to actually sell your house on the open market. Then, you can move into a smaller home or a rental property and pocket the difference.
- These transactions entice seniors because it means that they do not have to move out of the familiar, old homestead. To combat that obstacle, however, start looking at travel brochures. You would be able to pay for a VERY nice vacation with the money you would otherwise abandon through this transaction.
- Those people for whom this is a suitable transaction, should NEVER mix it with other investment transactions, e.g. annuities, funds, etc. These different transactions should be evaluated independently and on their own merits.
If you are still tempted, you MUST do your research. For starters, review -
- A Description of Reverse Mortgages
- AARP’s Guide to Reverse Mortgages
- Government Reverse Mortgage Guide from HUD
- Consumer Law’s Tips for Seniors
Once you’ve learned a bit more about reverse mortgages, read the recent Report by Consumer Law entitled, “Subprime Revisited”. If that is too detailed, at least read the Consumer Reports Article. Both review the current marketing practices being used by lenders today. The conclusion is BEWARE.
After all the research, ask yourself the same question that Clint Eastwood would ask. “Do you feel lucky?”
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