Monday morning quarterbacking is “what if” or “he should have…” discussion. Kurt Heide, President of American Pioneer Mortgage Services Inc. presents a review as to the benefits of a reverse mortgage.
Reverse mortgages are increasingly becoming an important consideration to families trying to meet the high costs of living in retirement. A reverse mortgage is a mortgage on your home which allows you (62 years-of-age and older) to use the equity in your home to receive money without having to pay it back as long as you or your spouse live in the house. The programs are designed to help seniors remain in their homes comfortably during their retirement years. Some of the current reverse mortgage products are guaranteed by the government and were designed after consultation with AARP and others. Several other reverse mortgage products have been developed by lenders which offer variations on the government programs.
A very good article on reverse mortgages was published in the January-February 2008 edition of the AARP bulletin. In that article they state that over 340,000 seniors have taken out a reverse mortgage through the HECM program offered by FHA. The increasingly popular programs have been used seniors to enrich their lives as indicated by the testimonials in the article.
NBC aired a program in January that was not very favorable to the reverse mortgage programs. Unfortunately, NBC tied the reverse mortgage program with an annuity program offered by an insurance company. They are two separate programs: one offered by a lender and the other by an insurance company. To obtain accurate information on reverse mortgages, consult with a reverse mortgage specialist. An insurance specialist can tell you the plusses and minuses of the annuity. Much of the negativity was focused on the annuity program.
NBC indicated that the costs of the HECM mortgage were very expensive. The costs are very similar to those of obtaining an FHA loan when you are buying a home. One of the major costs in a HECM loan is the 2% FHA mortgage insurance premium (MIP). This premium is charged on all FHA loans. With the reverse mortgage the MIP guarantees that FHA will continue with the payment terms of your agreement even if the lender declares bankruptcy. In today’s environment many would consider it a cheap price to pay for that security! The MIP also works to allow the lender to lend you more money because it also protects them if the home cannot be sold for sufficient funds to pay off the loan balance. Thus, even though the HECM program is more costly than other programs, most choose one of them because they can get more money and more money is usually what it is all about.
Now, back to the Monday morning quarterbacking; one of our neighbors recently died. She passed her condominium to her heirs. Over ninety percent of all inherited property is sold by the heirs as compared to those that retain possession (the number is closer to 100% in our neighborhood). The heirs placed the condominium on the market and received an offer of only $225,000. The heirs rejected this very low offer and sold it for a little more. Other heirs are having a difficult time selling their inherited property in the current market. When they cannot sell the property, they have the burden of carrying the expenses of that property. A reverse mortgage presents a viable option for seniors to pass more money on easily to their children.
In the first example above, the appraised value of the home was about $350,000. If the owner was 85 years-old, she could accomplish a Reverse Mortgage and take out a little over $267,000 if the property was not mortgaged (the amount would be reduced by any mortgage or liens on the property). This money would be tax free. This person could then distribute the funds as she sees fit. The owner should consult an estate attorney as how best to achieve her objectives in passing on the money while still alive. This program could also be used to reduce estate taxes (consult an estate attorney of financial planner).
Kurt Heide is president of American Pioneer Mortgage Services. He may be reached at 561-424-0522 x 225
Reverse mortgages are increasingly becoming an important consideration to families trying to meet the high costs of living in retirement. A reverse mortgage is a mortgage on your home which allows you (62 years-of-age and older) to use the equity in your home to receive money without having to pay it back as long as you or your spouse live in the house. The programs are designed to help seniors remain in their homes comfortably during their retirement years. Some of the current reverse mortgage products are guaranteed by the government and were designed after consultation with AARP and others. Several other reverse mortgage products have been developed by lenders which offer variations on the government programs.
A very good article on reverse mortgages was published in the January-February 2008 edition of the AARP bulletin. In that article they state that over 340,000 seniors have taken out a reverse mortgage through the HECM program offered by FHA. The increasingly popular programs have been used seniors to enrich their lives as indicated by the testimonials in the article.
NBC aired a program in January that was not very favorable to the reverse mortgage programs. Unfortunately, NBC tied the reverse mortgage program with an annuity program offered by an insurance company. They are two separate programs: one offered by a lender and the other by an insurance company. To obtain accurate information on reverse mortgages, consult with a reverse mortgage specialist. An insurance specialist can tell you the plusses and minuses of the annuity. Much of the negativity was focused on the annuity program.
NBC indicated that the costs of the HECM mortgage were very expensive. The costs are very similar to those of obtaining an FHA loan when you are buying a home. One of the major costs in a HECM loan is the 2% FHA mortgage insurance premium (MIP). This premium is charged on all FHA loans. With the reverse mortgage the MIP guarantees that FHA will continue with the payment terms of your agreement even if the lender declares bankruptcy. In today’s environment many would consider it a cheap price to pay for that security! The MIP also works to allow the lender to lend you more money because it also protects them if the home cannot be sold for sufficient funds to pay off the loan balance. Thus, even though the HECM program is more costly than other programs, most choose one of them because they can get more money and more money is usually what it is all about.
Now, back to the Monday morning quarterbacking; one of our neighbors recently died. She passed her condominium to her heirs. Over ninety percent of all inherited property is sold by the heirs as compared to those that retain possession (the number is closer to 100% in our neighborhood). The heirs placed the condominium on the market and received an offer of only $225,000. The heirs rejected this very low offer and sold it for a little more. Other heirs are having a difficult time selling their inherited property in the current market. When they cannot sell the property, they have the burden of carrying the expenses of that property. A reverse mortgage presents a viable option for seniors to pass more money on easily to their children.
In the first example above, the appraised value of the home was about $350,000. If the owner was 85 years-old, she could accomplish a Reverse Mortgage and take out a little over $267,000 if the property was not mortgaged (the amount would be reduced by any mortgage or liens on the property). This money would be tax free. This person could then distribute the funds as she sees fit. The owner should consult an estate attorney as how best to achieve her objectives in passing on the money while still alive. This program could also be used to reduce estate taxes (consult an estate attorney of financial planner).
Kurt Heide is president of American Pioneer Mortgage Services. He may be reached at 561-424-0522 x 225
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