Article

Reverse Mortgage: Expectations vs. Reality

Written by Craig LeBrau

Topic: Mortgage and Home FinancingPublished September 30, 2019

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How do you envision your retirement years– pursuing hobbies, enjoying Family gatherings, traveling, renovating your home? Or maybe you’re simply focused on achieving financial independence for the rest of your life. Considering your current goals and financial situation, you may still be deciding when you can retire if you haven’t already done so. Even if you’ve planned, saved and invested carefully, circumstances beyond your control or a change in your priorities can result in a gap between your current retirement income and the funds you need to meet your goals. Now is the time to consider all your options and make the right decisions to ensure your dreams are within your grasp. Fortunately, there is a solution that provides you with tax-free cash by tapping into the equity in your home: The Reverse Mortgage A Reverse Mortgage is an innovative government-insured loan that enables you to tap some of your home’s existing equity to obtain cash to help fund your retirement needs. Reverse Mortgages have helped thousands of homeowners just like you remain in their homes (mortgage payment free), throughout their retirement years. Reverse Mortgage Options Retirement should present an opportunity for leisure, well-earned relaxation and the freedom to enjoy life to the fullest without financial worries. But for some, it can be a time of uncertainty. Perhaps your retirement income isn’t as much as you thought it would be by now. If you’re experiencing a shortfall, you have several options for closing the gap: What’s a Reverse Mortgage? A Reverse Mortgage is a loan that allows you to access some of the equity in your home to obtain cash now. The amount you receive is primarily based on:

Current interest rates
Age of the youngest borrower
Appraised value of the home (up to certain limits)

In general, the older you are, the more valuable your home, and the lower your loan balance, the more money you can expect to receive from a Reverse Mortgage. You can get your money in a lump sum, fixed monthly payments, a line of credit that you can draw upon as needed, or a combination of these options. You can use the funds any way you want – to pay current bills, meet future financial obligations or simply enhance your lifestyle. Repayment is not due as long as you live in the home as your primary residence, continue to pay required property taxes and homeowners insurance, and maintain the home according to FHA requirements. One type of Reverse Mortgage, a Home Equity Conversion Mortgage or “HECM,” is insured by the Federal Housing Administration (FHA). It offers borrowers a secure, low-risk loan option. We feature HECM Reverse Mortgages. Is a Reverse Mortgage right for you? To determine if a Reverse Mortgage is right for you, evaluate your finances and goals:

Current budget
Future finances
Lifestyle needs and desires
Personal goals
How long you plan to live in your home
How important it is to you to leave home equity to your heirs

The timing of your decision is important, since the amount of your loan will be based on the value of your home, your age and other factors. It is usually best to consult a trusted financial advisor and a licensed Reverse Mortgage loan advisor to help you determine the best option for you. If you decide that a Reverse Mortgage is right for you, we’re here to help! What Your Family Should Know Many seniors want to include family members in their Reverse Mortgage decisions. Family members who aren’t familiar with Reverse Mortgages may be concerned, since they may have misconceptions about this financial tool. We invite you to include your children, siblings or other family members in the application process, if you so desire. We’ll be happy to explain how a Reverse Mortgage works and answer any questions they may have before you proceed. Built-in safeguards protect you As with any other major financial decision, you should carefully consider all the facts and get expert advice before choosing a Reverse Mortgage. Fortunately, a Reverse Mortgage has built-in safeguards to help you determine if it’s right for you. Independent HUD Counselors Provide Valuable Information Before we can begin processing your Reverse Mortgage, you must talk with an independent counselor approved by the U.S. Department of Housing and Urban Development (HUD). They provide objective information about Reverse Mortgages, answer your questions and make sure you understand the process. This can often be conducted over the telephone for your convenience.

Your Interest Rate is capped
If your loan has an adjustable interest rate, there is a limit on how much the rate may change during a specified time period. These reverse mortgage interest rate caps ensure your interest rate won’t increase beyond a certain level.
You Know All Your Costs Up Front
The Reverse Mortgage lender must disclose all estimated loan costs and fees, including the Total Annual Loan Cost (TALC), so you know exactly what you are paying to get the Reverse Mortgage.
You Have Three Days to Cancel
The Reverse Mortgage contract has a “Right of Rescission,” giving you the right to cancel the loan within three business days of the closing.

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About the Author

Director of Accounting for Private Educational Institutions at Jefferson+Partners (Sydney) from 2007-2015. Founded and led Lebrau & Partners Pty. Ltd. from 2015 until now - a boutique accounting firm serving educational institutions across the Asia Pacific (both public and private, primary, secondary and tertiary institutions).

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