Find out what a reverse mortgage is and what it is not

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The Truth About Reverse Mortgages
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Reverse Mortgages (Home Equity Conversion Mortgages) have become a popular and well
respected way for seniors to access the equity in their homes for many reasons. Some use the
equity for long-term care needs, to pay bills, pay off existing mortgages or debt, pay for
prescription drug costs, home improvements, home modifications, or to simply be able to enjoy life
a little more by traveling and enhancing their retirement cash flow. Many seniors use reverse
mortgages to pay high property tax bills, and have even been saved from foreclosure and
bankruptcy because they applied for a reverse mortgage.
Other seniors use reverse mortgage proceeds to fund advanced estate planning techniques. This
includes increasing the value of their estate through life insurance purchases, planning ahead for
future long-term care needs, assisting grandchildren with college funding, making charitable
donations, and to convert IRA funds to Roth IRA funds, just to name a few.
Many newspaper, TV, radio and internet articles circulating in the media give inaccurate and
misleading information about reverse mortgages. So called "experts" who are interviewed for
quotes often have no involvement in the mortgage industry and do not understand the federal law
that regulates these loans.
Each consumer should make it his or her own responsibility to talk with an expert, and educate
themselves on the facts.
TIP: As you know, the media attract more viewers, readers, and listeners when they make a story
exciting, scary, or dramatic. Because reverse mortgages are federally regulated loans, there really
isn't anything scary or dramatic about them when you know the facts. Be wary of interviews and
articles that make reverse mortgages seem like a scam. The Department of Housing and Urban
Development has done an excellent job of regulating reverse mortgages, and they are designed to
help seniors, not hurt them.
Some good websites for more information are http://www.fanniemae.com - be sure to download
"Money from Home" for free. The National Reverse Mortgage Lenders Association has great
consumer booklets- http://www.reversemortgage.org .
The National Council on Aging recently did a study that concluded that reverse mortgages are
good sources of funds for long-term care planning and long-term care needs. You can download
the entire study by visiting http://www.ncoa.org
Although there are closing costs associated with these loans, most, if not all of them are factored
in to the loan, and are not out-of-pocket expenses for the senior. Whether or not a reverse
mortgage is right for a senior depends on their specific situation, case design, and cash flow or

2. estate planning needs.
What is a Reverse Mortgage?
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes
into tax-free income without having to sell the home, give up title, or take on a new monthly
mortgage payment. The reverse mortgage is aptly named because the payment stream is
"reversed." Instead of making monthly payments to a lender, as with a regular mortgage, a lender
makes payments to you.
Who Qualifies for a Reverse Mortgage?
Eligible property types include single-family homes, 2-4 unit properties, manufactured homes (built
after June 1976), condominiums, and townhouses. In general, co-ops are not allowed. Only the
Financial Freedom "Cash Account" program is available on co-ops in New York City. As long as
you own a home, are at least 62, and have enough equity in your home, you can get a reverse
mortgage. There are no special income, credit or medical requirements.
How Are Seniors Protected?
Counseling is one of the most important consumer protections built into the program. It requires an
independent third-party to make sure your family member understands the program, and review
alternative options, before they apply for a reverse mortgage.
You can seek counseling from a local HUD-approved counseling agency, or a national counseling
agency, such as AARP (800-209-8085), National Foundation for Credit Counseling (866-698-
6322), and Money Management International (877-908-2227). Counseling is required for all
reverse mortgages and may be conducted face-to-face or by telephone.
By law, a counselor must review (i) options, other than a reverse mortgage, that are available to
the prospective borrower, including housing, social services, health and financial alternatives; (ii)
other home equity conversion options that are or may become available to the prospective
borrower, such as property tax deferral programs; (iii) the financial implications of entering into a
reverse mortgage; and, (iv) the tax consequences affecting the prospective borrower's eligibility
under state or federal programs and the impact on the estate or his or her heirs.
TIP: HUD Counselors are not financial planners, and should not be giving advice on financial
product purchases. Talk to a trusted advisor about a plan for the reverse mortgage proceeds.
How Can the Cash Flow From a Reverse Mortgage Keep Mom and Dad at Home Longer?
The cash flow from a reverse mortgage can be used for any purpose. In order to keep seniors safe
and at home for longer periods of time, it is recommended that the cash flow be used for home
modifications, repairs, personal emergency response systems, and in-home care services.
Whose Name Remains on The Title to the Home?
The seniors' names remain on the title to the home. The bank is not in the business of taking over

3. title, and certainly not in the business of owning homes. Therefore, just as with a traditional
mortgage, the seniors' name is on the title to the house.
Can Their Home Be Taken Away from Them?
When a senior implements a reverse mortgage, it is important to remember that they are
responsible for keeping the home owner's insurance in force, paying annual property taxes, and
for general upkeep of the home. Unless one of these criteria is not met, their home can never be
taken away from them.
Will Heirs Be Responsible for Repaying This Loan?
No, a reverse mortgage is a "non-recourse" loan. This means that the lender is only entitled to
loan repayment via the sale of the home for fair market value. If there is any remaining equity over
and above the final loan amount, the heirs receive that remaining equity. If the home sells for
LESS than the final loan amount, the federal government steps in and pays the lender the
difference. Heirs' assets are never at risk.
When Does the Loan Come Due?
The loan comes due when the last remaining homeowner leaves the home permanently. This
means that the loan will come due when the last homeowner passes away, sells the home, or
leaves permanently (12 months or more).
Do Reverse Mortgages Affect Medicare or Social Security?
Reverse Mortgages do not affect Medicare (including Medicare Part D) or social security income.
However, the proceeds from a reverse mortgage CAN affect local income based programs in your
area, and the big one- Medicaid. (note there is a huge difference between MediCARE and
MediCAID.) Medicaid eligibility can be preserved with the right plan even after taking out a reverse
mortgage. Talk to a professional, Larry Eastman nmls#378353 (310-677-0291) at GM Funding
Services about the options.
Can Mom and Dad Still Leave Their Home To Their Children?
Yes, with proper planning, they certainly can. One way to make sure that heirs receive the value of
the home is for the seniors to purchase life insurance using the proceeds from the reverse
mortgage. Some seniors end up doubling or tripling the value of their estate for their heirs because
they use the reverse mortgage proceeds to pay the life insurance premiums. This way they never
have to touch a penny of their savings, investments, or current income to increase the value of
their own estate. This also helps the heirs, because inheritance passed on through life insurance
(beneficiary designation) bypasses probate, and taxes!
How Does The Deficit Reduction Act 2005 Effect Home Equity?
The Deficit Reduction Act of 2005 requires that individuals with home equity over $500,000
($750,000 in some states) use some of that equity to pay for their own care prior to qualifying for
Medicaid services. Reverse mortgages have become a very popular and appropriate option for

4. decreasing the equity in the home and using that equity to pay for care.
For more information or to contact the author visit http://www.theltcexpert.com
Article Source:
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The Truth About Reverse Mortgages
http://www.gmfundingservices.com
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