Pacific International Financial Mortgage Company
Reverse Mortgage Specialist
Reverse Mortgage Guide
How to Avoid 4 Costly
If you are 62+, you can learn to avoid these costly mistakes and exercise the option to completely relieve financial stress using the equity of your home as a source of tax-free income…
And never lose control or title to your home, as long as you pay your house taxes and your home owners insurance.
This increased, TAX FREE cash or income allows you to pay off bills, cover medical expenses, make home repairs, take a Caribbean cruise, or spend more time on the golf course. More than anything the additional money is available for your financial relief and peace of mind.
Many seniors, in fact, have come into hard times with high medical bills and unforeseen life circumstances. Sadly, their fixed incomes are not enough, and many have to take on menial jobs or suffer the indignity of calling their kids or other relatives for financial help. Some can’t do either and are forced to simply live on less. The thoughts of a relaxing vacation have been replaced by thoughts of survival.
A reverse mortgage allows you to keep the title to your home and totally eliminate this stress. You can get the cash you need in as little as 30 days, and the process is much easier than a regular mortgage.
The term “Reverse Mortgage” can be intimidating.
Let’s clear up some reverse mortgage myths you may have heard at the local coffee shop:
1. The bank owns my home: Absolutely not! The bank or lender does not own or take your home, nor do they have any rights to it. The lender simply has a lien against your property just like any other mortgage. The title is all yours.
Eventually, upon the death of last surviving borrower, voluntary sale of the home, or if all borrowers voluntarily move out of the home for at least 12 months, the lender will want their money back with interest.
The house is the lender’s collateral, and it is usually sold when the mortgage is due. At that point the bank gets what is owed to it, and you or your heirs get the remaining proceeds.
2. Reverse mortgages are prohibitively costly: This is a blanket statement and only true under certain conditions. A good scenario to use as a costly example might be if you were to take out a reverse mortgage and sell the home within the first three years. Under this circumstance the reverse mortgage costs may be too high. If I knew you were planning on selling so soon I may advise you to go a different route.
Lately, certain reverse mortgage products’ closing costs have come way down, and I’m happy to discuss if you choose to call or email.
3. My heirs will owe the bank: Reverse mortgages are known as “non-recourse” loans. This means, under the circumstance more is owed to the lender than the home is worth, and the loan is due based upon death, sale, or vacating the premises, the maximum amount the heirs are required to pay the lender is the value of the home at the time of repayment. The bank cannot come after the family (“non-recourse”) for the difference under this circumstance.
4. Income from a reverse mortgage is taxable: It is not taxable and doesn’t affect social security and Medicare.
5. I must have good income and credit to qualify: Not at all. There is no income qualifying, and only certain types of credit problems can affect the loan.
6. Reverse mortgages are just for the cash poor: No. Affluent people are taking advantage as well. A reverse mortgage can serve as an excellent financial planning tool. This may be why homes with values over $750,000 are a growing segment in the reverse mortgage business.
7. My home must be owned free & clear to get a reverse mortgage: Not at all. In fact, the majority of borrowers obtain the reverse mortgage specifically to rid themselves of the burden of that mortgage payment.
These myths are gradually being dispelled and reverse mortgage numbers are raising rapidly. According to the National Reverse Mortgage Lenders Association, HUD (Housing and Urban Development) insured reverse mortgages totaled 157 in 1990. In 2008 HUD insured over 112,000 reverse mortgages.
The reason for this dramatic increase is the cost of living is on the rise, and a reverse mortgage offers seniors a safe, tax-free income or cash payout, without fear of the bank taking back the home or losing title to the home.
How a Reverse Mortgage Works………
The best way I know how to describe the reverse mortgage is as follows: Think of any mortgage you’ve had in your life. The reverse mortgage is structured almost identically. The only real structural difference is instead of being forced to make monthly principal and interest payments to the lender the reverse mortgage allows you to not ever make payments.
So, rather than borrowing against your equity and making monthly payments, you simply borrower against the equity of your home and do not make payments. Instead of the lender getting the interest monthly like every typical forward mortgage, the reverse mortgage lender is willing to get the interest at the end of the mortgage.
So, what defines the end of the mortgage?
1. The last borrower, living in the home, passes away.
2. The borrower(s) sell the home.
3. The borrower(s) voluntarily leave the home and vacate it for at least 12 months.
The best part is the money to repay the lender typically comes out of the actual sale of the property. As I’ve said before either you or your family receive the additional proceeds from the sale – NOT THE BANK.
Government instituted checks and balances exist to insure you are making a good decision…
Prior to obtaining a reverse mortgage, you are required to talk with a HUD approved reverse mortgage counselor to discuss the workings of a reverse mortgage. The goal is to make sure a reverse mortgage is the proper decision for you. This allows you to speak to a neutral third party and allows you, the consumer, to be more informed about the process.
Additionally, HUD sets maximums on interest rates and the types of closing costs a lender may charge you for the loan.
Now that we’ve taken care of the preliminaries, let’s talk about how you can receive income. …
There are FOUR payment options for seniors:
· Fixed Monthly Payments: This offers you a monthly, tax free, income for life or over a predetermined (by you) period. In this instance a calculation will be made, based upon your age, interest rate, and the value of the house, as to how much tax-free income you will receive on a monthly basis. You can give us a call for this calculation. It takes no time at all.
· Lump Sum: You may take entire amount out all at one time. Again, amount is based upon age, value of home and interest rates.
· Line of Credit: Allows you draw money out at any time, and interest is accrued only on moneys drawn out. This has become very popular because it allows you to take money out on an “as needed basis”, and any unused portion of the line of credit actually accrues interest and grows.
· Combination: You may combine the above three in any way you please. The flexibility is there as every human being has a unique situation that doesn’t necessarily fit neatly into just one of the first three payout options.
Income from a reverse mortgage may be used at your discretion. These are the top ways people are spending this money:
· Paying off bills
· Purchase of long-term care and life insurance
· Paying Off mortgage to relieve monthly payment
· General living expenses
· Home repair and remodeling
· Prescription Drugs and healthcare costs
· Travel and other recreation
· Helping family members
The money is yours and may be used for anything. It’s about creating choice and peace of mind for you.
Eligible properties: Eligible properties include single family residences, 2-4 unit properties in which you live in at least one of the units, double or triple wide manufactured homes built after 1976 with FHA approved foundation, most condominiums, and townhouses.
Age limitation: The youngest borrower must be at least 62 years old. This does not prohibit couples with one spouse aged less than 62 from using the reverse mortgage. The younger spouse is simply left off the mortgage in this case.
How much money will you receive: This is calculated based upon a combination of three important factors:
1. Age of the youngest borrower
2. Value of your home
3. Interest Rate at the time you begin your reverse mortgage
Under normal circumstances you can expect to receive anywhere from 45% to 75% of the value of your home. As I’ve stated you can receive this money monthly, in a lump sum payment, and/or as a line of credit which you may draw upon at your convenience.
Rates are extremely low…. This means more cash to you.
When it comes to interest rates, the lower the rate, the more cash for which you qualify. Currently, interest rates are extremely low. Chances are good they will increase from here. As they increase the amount of money for which you qualify reduces. Please keep this in mind.
Easy, no hassle qualifying!!
One of the beauties of a reverse mortgage is you don’t qualify based upon credit scores or income. Remember, you are not responsible for making a payment. Traditional lending practices require the lender to make a calculated gamble on the borrower’s ability to repay the loan. Therefore, the lender has to scrutinize the borrower carefully. Since there is no payment to a lender, we pretty much skip this part of the process. This takes out 80% of the hassle of the loan process. Don’t worry about bringing in your 1099s, your tax returns for the last 3 years, bank statements, etc. etc. You get all the benefits and none of the headache!
Well, I shouldn’t say that…. I have to admit there are more disclosures for you to sign, at application, than a typical mortgage. The reason is simple. HUD is involved to make sure you are a more informed consumer.
4 Big Mistakes…. Be Careful!!
In this section we’ll uncover five areas you need to avoid to save yourself thousands if not tens of thousands of dollars.
1. Not Knowing Your Options: I should preface this by saying that each person has a unique financial situation and needs. As such you cannot be pigeon-holed into one type of loan.
If your needs are not assessed correctly you may choose the wrong reverse mortgage. You may choose the wrong mortgage simply because the other options were either not discussed properly or not discussed at all.
On the surface level, this mistake may seem quite obvious to you, but the financial ramifications of knowing your reverse mortgage options can be huge. Make sure your loan officer thoroughly discusses multiple loans with you and how each can affect your financial position. Never accept the first opinion of your loan officer without asking “why”, and how one loan compares with the other, and more importantly, how each would affect your cash position over time.
You see, what happens to your cash position over time is the real trick to getting the right reverse mortgage. How your needs are assessed, and which reverse mortgage you choose, based upon your needs, will directly affect what happens to your cash position over time. The wrong decision could cost you many thousands of dollars.
2. If you receive Medicaid or SSI benefits: As I stated earlier income received from a reverse mortgage is not taxed and does not affect most social security or Medicare benefits. However, Medicaid and SSI benefits may be affected if you don’t use your income from the reverse mortgage immediately.
The money you keep in the bank is counted as an asset. As such if you receive income from your reverse mortgage and it is not used by the end of the calendar month you may exceed the maximum assets allowable. At that point you may be ineligible to receive these benefits.
This is why many people tend to choose the third option above (line of credit) because they can take money out on an “as needed basis”. Clearly, if money is taken out on an “as needed basis” it would be spent by the end of the calendar month and not counted as an asset. You should consult a local Agency on Aging, Social Security or Medicaid office for further clarity.
3. Short Mortgage Period: The reverse mortgage is an excellent solution to many financial situations, but not all. The reason is that closing costs, are still higher than a typical mortgage and are a cost to consider when looking at whether or not a reverse mortgage is the right decision.
For example, if you plan on being out of the home in less than three years, the costs of getting a reverse mortgage can easily outweigh the benefits.
If a lender advises you to go forward with a reverse mortgage, and you’ve disclosed your intention of being out of the house within three years, I’d be wary of that lender and seek a second opinion. Typically, we can suggest much cheaper alternatives that can accomplish the same result as a reverse mortgage.
4. Multiple Product Pushers: Some lenders have ties or principle interest in companies offering large ticket items like annuities, insurance, or construction services. These lenders may suggest using the reverse mortgage to fund the purchase of these backend services. The lender would receive financial gain for the reverse mortgage and for any services you purchase on the back end. If a conflict of interest like this exists, you may not be getting the purest of advice. It’s very possible the cost of the reverse mortgage may outweigh the benefits of the back-end product or products.
Get your questions answered sooner than later. Benefits of the program may be shrinking soon… As I mentioned earlier, interest rates are nearing an all time low.. This means the amount of money you qualify to receive is about as much as it can be. When rates are this low they tend to trend upwards. When they go up it reduces how much money you can receive. Get your questions answered now while rates are still low!
So, what do you do next?
The next step to stress relief is to contact us for a free, no obligation consultation and analysis. You may call me, or one of my team, toll free at 888-557-1636 (Monday through Friday). During our consultation we’ll talk about your financial goals, concerns you may have, the process of getting a reverse mortgage, monthly cash out plans as opposed to taking out a line of credit, and any variables that may cause us to suggest alternatives to a reverse mortgage.
What the consultation is not… It is not a sales pitch, nor is it a hard sell for you to do business with us. We would certainly like to work with you. So, when you call in, you can expect education and consultation, not sales and hard closing. If a reverse mortgage is not the best option for your particular situation, we’ll tell you and suggest alternatives.
Pick up the phone and call us toll free today. 888-557-1636
P.S. The turmoil in the real estate market has forced HUD to make changes to the reverse mortgage in the last 12 months. We expect more changes coming. Please refer to the pages above but please understand what is true today may not be valid in the coming months.
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