As great as this product is, it is not right for everyone and it is always the best idea to know your goals and to have the help and support of your family and a trusted financial advisor.

In this case, let’s start with the con’s. Reverse mortgages are expensive loans. Because you have to pay not only an origination fee but also the HUD Up-Front Mortgage Insurance, the initial costs can be staggering to some.

Also, there are many ways to take your funds with a reverse mortgage and since the loan balance grows over time, the fees are based on the principal lending limit or the property appraised value, whichever is less. As an example, the owner of a $417,000 value property in Florida (the new national limit) where the tax stamps are high can expect to pay somewhere in the neighborhood of $18,000 in fees and insurance for their loan.

They do not have to pay this money out of pocket up front, but it is added to the loan balance and so if the borrower is not looking for a long term solution, a reverse mortgage is probably the last loan that should be considered. Another possible negative of a reverse mortgage is for seniors who are not paying off a current mortgage but take all their funds up front for various purposes and it is two-fold.

Firstly, seniors need to concern themselves with eligibility for some need-based programs such as Medicaid. By placing all their reverse mortgage proceeds into a bank account at one time, seniors could make themselves ineligible for necessary programs and so this should always be kept in mind when determining how to take your funds.

Secondly, many unscrupulous folks are always looking for a way to separate seniors from their money. Whether it be with a bad investment (and bad can be defined as risky or one that cannot be accessed for long periods of time without penalty which the senior borrower may not have) or just someone looking to steal from the senior, having a lot of cash is a tempting target and many seniors are too trusting. Some couples find that they will receive more money by removing the younger borrower from the title and using only the older borrower.

Unless there is adequate insurance or other arrangements have been made upon the passing of the older spouse, we do not recommend this course of action due to the fact that the younger spouse would then be left with a balance for which they probably could not qualify for a reverse mortgage of their own and they would be forced to move.

Now the pro’s! A reverse mortgage allows senior borrowers to live for the rest of their lives in a home with no mortgage payments. The home can be financed or owned free and clear and the borrowers can still obtain a reverse mortgage. There are no income or credit requirements to meet. Unlike conventional forward mortgages, borrowers do not have to make monthly payments so they do not have to qualify like forward mortgage borrowers.

Borrowers always own their home and borrowers or their heirs dispose of their property just the same with a reverse mortgage as they would with any other home loan. Reverse mortgage proceeds are tax free, and borrowers can use the money for any purpose they choose. Borrowers can modernize or alter their home for comfort. They can pay for needed medical expenses, travel or other recreation, they can use the money for grandchildren’s college, or any purpose they choose. It’s your home, and your money.

There’s never a monthly mortgage payment so as long as the senior homeowner lives in the property, they never have to worry about where they will get the money to make the payments. The loans are government insured and therefore, the senior homeowner is guaranteed to always have the funds available to them, and if the lender does not pay funds to the homeowner in a timely manner, the bank owes the homeowner a late charge! HUD guarantees that as long as you have funds left in your line of credit, you will always have them available.

That is very comforting when banks are freezing lines of credit daily on normal Home Equity Lines of Credit. And finally, no matter how long you live in your home, and no matter how much money you take from it in payments or what the real estate values do, you and your heirs can never owe more than the property is worth. Many homeowners today are upside down on values as values have dropped but this can never happen with the HUD Home Equity Conversion Mortgage otherwise known as the government reverse mortgage.

As with any product, knowing whether or not a reverse mortgage is right for you is a matter of education and looking at your individual circumstances. We have seen reverse mortgages do some great things for some people who really wanted and needed them, but only you in conjunction with your trusted financial advisor and family can tell if this is the right loan for you.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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Pros / Positives

The biggest positive of the deed in lieu of foreclosure is that your credit doesn’t suffer as much as it would if it displayed a foreclosure. A foreclosure looks really bad on your credit and it can stop you from being able to buy another home for at least 10 years. No one wants a foreclosure on their credit. Being able to avoid this is a really good thing.

The deed in lieu has another positive aspect that it can happen quickly. The quicker you are released from the mortgage payments each month then the less you owe on the back payments and penalties for late fees. Many banks forgive the penalties, late fees, and back payments while others will come after you for it. The quicker you sign over the title to the home the less money you may owe.

Cons / Negatives

Some people look at the time factor as a bad thing. The sooner you sign the title over in a deed in lieu of foreclosure means the sooner you have to be moved out of the house. Some people live in their home up until the day the sheriff’s office comes to evict them out. This can be up to a year of free rent in a place. A deed in lieu needs to take place quickly upon you realizing you cannot sell your home.

The bank also has a requirement for people who want to sign over the title to their home for a deed in lieu of foreclosure. This requirement is that you attempt to sell the house first. You will have to register the home with a real estate agent. You might have to pay for an appraisal and fees for an agent. If you don’t have any money this may be tough for you to get through the process of working with the bank.

One of the things you must think about is that you cannot be eligible for a deed in lieu of foreclosure if there are any liens on the property. If there are liens on the property, there is no way you will be able to avoid the foreclosure unless you pay up the back payments you have missed on and keep the home. Chances are good you are looking forward to a legal battle also if there are liens.

Conclusion

There are many pros and cons of a deed in lieu of foreclosure you might consider if you are no longer capable of making the monthly payments for your home. You can benefit from not having a foreclosure on your credit record and being free of the debt sooner. It is important to keep in mind that you should be entirely moved out of your home when you are considering a deed in lieu of foreclosure.

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The loan fees are based on the maximum credit limit for the HUD lending area for the government Home Equity Conversion Mortgage (HECM). The loan also has an up-front mortgage insurance fee of 2% of the maximum lending limit which also increases the costs. Add to these the normal costs such as appraisal, escrow, title fees, etc., and you may see fees as high as $17,000 or slightly more in some of the higher HUD lending areas.

While the costs seem high, the insurance on this loan are more for borrower protection than any other loan the government insures. This insurance protects the borrowers in two ways. Firstly, if a lender ever goes out of business or fails to pay a borrower in a timely manner for any reason, HUD steps in and makes certain that the borrower receives a steady stream of payments. As you read about lenders going out of business, with a HUD insured loan, you never have to worry about whether or not your payments will be made to you.

Also, HUD will insure that the borrower will never owe more than the property is worth regardless of how much money the borrower receives over the years, how much interest accrues, or what property values do in the future. Everyone hopes that values will continue to go up, but if the values should fall, the senior borrower and their heirs will never owe more than the property is worth.

So now that you know what the costs are, how can you decide if you should go ahead with the reverse mortgage? If you’re a senior homeowner, ask yourself the following questions:

1. Do you find yourself short of funds every month?
2. Do you wish you had money to repair your home but don’t and can’t borrow and make payments?
3. Are there rising medical costs you can’t quite cover and your insurance doesn’t cover them either?
4. Are you making a monthly payment that is keeping you from being able to live your life as you would like?
Do you wish you could travel, or help a loved one through their education but you just don’t have the funds in the bank to do so?

If you answered yes to any of the questions above, it may be time for you to put your equity to work for you with a reverse mortgage.

I have seen a lot of good that Reverse Mortgages have done for senior borrowers. I’ve seen them change lives and living situations for the better. I’ve seen people come out of foreclosure with a reverse mortgage and never have to make another mortgage payment. But is there a time when a reverse mortgage is NOT right? Honestly, yes.

There are a few examples I can think of off the top of my head for which I would advise a senior borrower not to get a reverse mortgage. Reverse mortgages are not inexpensive, if you did not intend to occupy the property much longer, that is, you thought you would move soon, I would advise against a reverse mortgage unless it was the only alternative you had to keep your home out of foreclosure in the mean time. Some married couples have one borrower old enough to take advantage of a reverse mortgage but the other spouse is too young. In this instance, I see them wishing to quit claim the younger spouse off title to obtain the reverse mortgage.

I don’t recommend this unless the older spouse is adequately insured so that if the older spouse passes, the mortgage can be paid in full. If not, the loan would be due and payable, and even if the younger spouse was now old enough to qualify for a reverse mortgage, chances are pretty good that he/she would not be eligible for a high enough loan amount to cover the old balance left by the reverse mortgage from the passing older spouse that has accumulated interest. In this case, if the younger spouse did not have adequate funds from another source to pay the mortgage in full, he/she would be forced to sell the home and would be displaced.

I do not recommend a reverse mortgage to those whose health is so bad that they know there will not be at least one borrower able to stay in the home anyway (once all borrowers on the original loan are out of the home for a period of 12 months, which includes nursing homes, the mortgage becomes due and payable).

There is no income qualification for a reverse mortgage, however, if you know that even with the relief you gain from a reverse mortgage you cannot afford the taxes, insurance and upkeep on your property, then I would suggest you look at other alternatives. Reverse mortgages require that the borrowers still pay all the taxes, insurance and maintain the property in reasonably good condition. If your monetary needs are temporary, then the costs of a reverse mortgage may not make it the best option. Finally, if you don’t really even need a reverse mortgage and someone is trying to talk you into one, then talk to your trusted family members or financial advisor.

It could be that the person trying to convince you is looking out for your best interests and wants to see you more comfortable or prepared for future events, or it could be that they have other motives and you need to really look at your circumstances and determine whether a reverse mortgage is right for you.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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