Many people don’t realize that Reverse Mortgages have been around since 1961. While I have heard several companies take credit for doing the first reverse mortgage, I believe the first one was done in New Jersey. The lady not only outlived her reverse mortgage loan but she also outlived her loan officer. The original reverse mortgages did not have much protection for the senior.
Over the years, several safeguards have been put into place. One of those safeguards is the requirement that all reverse mortgage applicants go through counseling. The reverse mortgage (called a HECM Home Equity Conversion Mortgage) is an FHA or government insured loan. FHA wants the counseling to be done through a third party agent who has no financial ties to that loan. While this may seem a bit paternalistic, it’s a really good idea. This gives the senior another opportunity to ask questions and to hear about how the loan works. In many cases, the senior can bring their adult children or other financial adviser to their counseling appointment. It’s important that seniors also look at any options they may have and counselors assist in that process. The counseling takes about 45 min to an hour and in most cases it is be done over the phone. Some counseling can be done in person as well. As of August 2008, Counseling Agencies may now charge for their services. There are, however, some agencies who can waive their fee ($125) for seniors who are financially unable to pay. Always ask your counselor about this option. Once the counseling is done, the senior will receive a certificate of completion and this certificate is required before the lender can order an appraisal on the property.
Another safeguard, is the mortgage insurance premium (MIP). While this insurance is added to the costs of the loan, it’s invaluable in protecting seniors and their families. This insurance means that the senior can never owe more than the property is worth. If that were to happen, the lender would simply make a claim against that insurance for any loss and the lender would never go after the senior or their heirs for that difference. This means that the senior will not ever leave a debt for their family. This is very important to the majority of reverse mortgage customers.
A third safeguard is the maximum age. The original reverse mortgages stopped at age 100 but today, the reverse mortgage is good until age 125 or until the senior permanently vacates the property (after one year), whichever comes first. We haven’t had any seniors reach 125 yet!
A more recent addition to the reverse mortgage program is the addition of fixed rate reverse mortgage products. In the past, all reverse mortgages were adjustable rate loans. Fixed rate loans today, provide the customer with the maximum amount of loan when compared to the adjustable loan. This can change as interest rates go up and down but currently, the fixed rate does afford the maximum proceeds from the loan amount. While adjustable rate loans may still be viable for some seniors, it’s nice to have the option to choose from. If you still have questions about the safeguards available with the reverse mortgages today, talk to your reverse mortgage specialist. He or she will be happy to fill you in on all the details of this wonderful product.
Brenda Wheeler, Reverse Mortgage Specialist, M & I Bank Indianapolis
To learn more about this and other senior care funding options go to www.agingavenues.com or call 317-731-3315.
Tags: indianapolis, paying for care, reverse mortgage, senior care