1. How much money do you have to pay out of pocket? Yes, reverse mortgages pay you by allowing you to borrow against your home equity. But borrowing a reverse loan includes closing costs that your are responsible for paying. Closing costs can vary depending up the reverse mortgage lender, so get all the facts before committing to a loan. Ask if certain costs can be waived or reduced.
2. How much are the fees for the reverse mortgage insurance premium and servicing? The reverse mortgage insurance premium is charged as a one-time fee at closing and as a monthly percentage of your outstanding loan balance. The service fee is charged each month.
3. How will you receive the money? Reverse mortgage proceeds can be received as a lump sum, through regular payments, as a line of credit, or a combination of all payment methods. A housing counselor can help you determine which of those payment options makes the most sense for your situation.
4. Does the reverse mortgage lender require you to purchase an annuity in order to receive a loan? You can’t be required to buy annuities or other financial products in order to qualify for a reverse mortgage. It’s not illegal for a mortgage lender to offer you these types of products, but make sure you fully understand all the rules and requirements if you decide to sign up.
5. What happens to the reverse mortgage at the end of the term? Your reverse mortgage lender should explain how the loan must be paid back and when. The lender should also discuss the procedure that must be followed if reverse mortgage heirs to keep the home after you’ve passed away.

These are just some of the considerations when deciding whether to get a reverse mortgage. Talk with a housing counselor to get more information about reverse mortgage guidelines.

They didn’t “retire” in the sense of living smaller, instead they retired on a monthly income which was adequate for their needs, including the “need” to travel, eat out and help their children.

How did it happen?

First, they received Social Security.

Second, they had paid off their mortgage over time so housing costs were lower.

Third, they had various investments, things such as stocks, bonds and certificates of deposit.

Fourth, they had Medicare with supplemental insurance.

Today the “needs” are largely the same but the economy has changed.

Income

A funny thing happened to income during the past decade. While prices for just about everything have risen, wages have stalled.

If you made $51,296 in 1999 — the typical household income that year — then in 2009 you would probably earn $50,303. That’s right. Income has been stilled and stagnant, which means it’s been difficult to pay off bills, save or do much else.

“Where have all the economic gains gone?” wonders Robert Reich, former Labor Secretary under President Clinton. “Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.” (See: How to End the Great Recession, The New York Times, September 2, 2010)

Most people — by definition — are not among the nation’s richest families. For the average household the thought of retirement is getting more and more distant. And certainly notions about privatizing Social Security and reducing or getting rid of Medicare don’t help.

Reverse Mortgages

All of this raises a question: Where do reverse mortgages fit in?

As of July, the FHA had insured 66,502 home equity conversion mortgages (HECMs) so far during fiscal 2010. That number is down 31 percent from last year.

You look at the reverse mortgage numbers and wonder: Why should HECM figures be down? After all, the value and utility of such financing is plain given what’s happened to typical wages.

If anything, one would expect reverse mortgage demand to rise.

The view here, for what it’s worth, is purely observational. With home prices down from the highs of April 2007 in virtually all markets, the ability to borrow against equity has been reduced. This financial fact-of-life simply disgusts large numbers of people who “see” the value of their homes in the form of acquisition costs if bought recently or in terms of the high valuations of a few years ago.

The oddity here is that for many seniors a reverse mortgage — properly purchased with the help of an attorney who specializes in elder law or a fee-only financial counselor — can make sense. For instance, a reverse mortgage might be used to pay off an existing mortgage. That would end monthly costs for principal and interest and significantly help many household budgets.

Is a reverse mortgage right for you? Speak with lenders who offer such financing as well your financial professionals for more information and specifics.

Cons

• Declining home equity. A reverse loan allows you to convert a portion of your home equity into cash. Some people are uncomfortable with the idea of giving up equity and accumulating mortgage debt. Decide how important it is to you to own a home free and clear vs. getting cash in your hands now.
• Reverse mortgage heirs. It’s uncommon for family squabbles to break out over the estate of a departed loved one. It’s a good idea to discuss your plans for borrowing a reverse home mortgage with any heirs. While it’s your right to borrow against home equity, being open about your plans can help avoid problems later.

Pros

• Cash in your pocket. Many seniors on fixed incomes are struggling to pay their bills and have taken a hit to retirement savings. If you’ve investigated a variety of options for supplementing your income or finding other types of aid for seniors but haven’t found a solution to your financial issues, a reverse mortgage could be a way to get the extra income you need.
• Independence. A reverse loan could give you enough income to continue living in your home independently. Not only can the money go toward regular living expenses, but it can also be used to make changes to repair or renovate your home.

Scheduling an appointment with a reverse mortgage counselor can help you begin to assess whether or not to borrow money. Look for a counselor who is knowledgeable about reverse mortgage guidelines, as well as alternatives to borrowing money.

• Update your skills. Whether you are currently working or have been out of the labor force for a few years, it’s important to have a good grasp of some of the more common technology used in your field. If you’re over 50 it’s important to show potential employers that you are adaptable to change. Get training to become familiar with changing technology and compete with younger workers. Also consider starting your own blog and joining a social network like Linked In to network with people in your industry.
• Consider switching to a different career. Whether you’re still working or have been out of the work force a few years, you probably have some skills that can help transition to a new field. If you need to take some classes to switch jobs, look for inexpensive courses online or through a local community college. There may even be free or low-cost classes targeted at seniors or folks who are unemployed.
• Rewrite your resume. You may have held several positions at a number of companies throughout a long work life. But you don’t need to highlight a 30-year work history on a resume. Focus on the most significant accomplishments over the last 10 years of your career. If necessary, work with a career coach to hone in on your most important skills and assets.

Reverse mortgages have helped many seniors find the funds they need for a secure retirement. But if you want or need to work, it’s important to do whatever you can to make the best impression on potential employers.

1. Do seek out a knowledgeable housing counselor who can discuss reverse mortgage guidelines. Any reverse mortgage counselor you work with should have passed an exam approved by the Department of Housing and Urban Development (HUD), and should continue to get follow-up training as needed.
2. Do compare quotes from several reverse mortgage lenders. Fees can vary at different mortgage lenders, so it’s important to gather as many quotes as you can to find the best deal.
3. Do talk with reverse mortgage heirs who might have to deal with the loan after you die. Keeping family members informed about your plans can help avoid problems and confusion later.
4. Don’t rush into a reverse mortgage just because your friend did. Reverse loans can help supplement your income, but these financial products aren’t for everyone. You may not have enough home equity to make it worth your while to borrow money.
5. Don’t get a reverse home mortgage without having a specific plan for using the proceeds. All money received from a reverse mortgage should be accounted for with a budget or long-time savings plan. Even if you deposit proceeds from a reverse loan in an interest-bearing account, you should take time to investigate the best places to stash money for the long term.
6. Don’t stop paying on homeowners insurance and property taxes. Falling behind on these financial obligations can result in a reverse loan having to be repaid early.

Gather the facts you need to make the right choice about borrowing against home equity. Any decision you make should improve your financial situation so that you can live comfortably in retirement.

You can find copies and variations of this statement all over the Internet, but there is no news release from HUD concerning the HECM Saver, the subject of the release. There is no HECM Saver statement from HUD in the Federal Register. Indeed, there is no HECM Saver program as of this writing though there are certainly hints, rumors and mutterings.

Specifics

“In a telephone briefing to prepare industry participants for upcoming changes to the HECM program,” says the release, “HUD Deputy Assistant Secretary Vicky Bott shared the Department’s plans to implement a new variant of the product, referred to as the ‘HECM Saver,’ that will provide seniors with a reverse mortgage option that significantly lowers upfront costs by virtually eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option. Bott also reported accompanying changes intended for the existing HECM product, now referred to as a ‘HECM Standard.’ The introduction of the HECM Saver and changes to the HECM Standard are expected to be effective shortly after the new federal fiscal year begins this October.

“The primary difference between the two HECM options will be in the cost of the upfront Mortgage Insurance Premium (MIP) and the amount of the funds, or ‘principal limit,’ available to borrowers. The upfront Mortgage Insurance Premium is charged by the Federal Housing Administration to support its insurance fund. Under the HECM Standard option, the upfront MIP will remain at 2% of the value of the property (or 2% of the maximum FHA loan limit of $625,500, if the property has a value greater than that.) HECM Saver will have an upfront MIP of only .01% of the property’s value, significantly reducing upfront costs.

“This cost saving in upfront fees is able to be achieved because the amount of money available to a borrower, an amount known as the ‘principal limit,’ under a HECM Saver will be reduced, substantially lowering the risk to the FHA insurance fund. Borrowers will receive approximately 10% to 18% less under the HECM saver option, than they would under the HECM Standard option.”

Alas, the HECM Saver program does not exist. It may exist after October 4th, but since possible program details remain unsettled we don’t know what it will actually include or exclude, what it will save or not save, how much it will finance or not finance — or whether the whole idea will be delayed or even dropped. Only when the entire program is finalized and all the details can be considered will it be possible for seniors to evaluate what’s being offered.

The process is similar to creating legislation on Capitol Hill. As an example, in a few days the Wall Street Reform Act magically went from 2,253 pages to the 848-page document signed by the President.

It’s easy to understand that HUD would like to examine its reverse mortgage programs from time to time, that it would like to reduce risk and raise fee income and that it would like input from various stakeholders. No doubt when and if there’s an HECM Saver program we’ll hear all about it. From HUD.

Hopefully — before the final details are completed — HUD will chat not only with those who sell reverse mortgages but also with consumer organizations, those who represent seniors, practitioners of elder law, prospective borrowers and fee-only financial planners.

When do you plan to retire? Have you saved enough for your golden years or explored options for funding retirement, such as reverse mortgages or postponing retirement?

About 46% of people polled by the Retirement Readiness Index said they will delay their planned retirement age. The survey, conducted by the MetLife Mature Market Institute, found that men were more likely to have thought about whether or not they were financially prepared for retirement. Of those polled 52% said they are behind in their retirement goals and 25% said they were significantly behind. Only 28% said they are on track or already have met retirement goals.

Retirement planning tools

Planning for retirement is not something that happens overnight. Retirement planning should occur throughout your work life and may need to be adjusted as you go along. The MetLife Mature Market Institute has a retirement planning book that can help you prepare even if you don’t have too many years before retiring.

If you are like many Americans who managed to build a retirement savings over your working years, only to find your plans derailed by the economy, it’s important to find the right strategy to boost your retirement income. A housing counselor can review reverse mortgage guidelines with you to determine if borrowing against home equity could help supplement your retirement income. Other alternatives may be available, such as programs for seniors in your community. You can also begin comparing reverse mortgage quotes here.

Reverse loans aren’t your only option for funding retirement, so it’s important to discuss other alternatives that can help. A qualified estate planner can help put together a comprehensive strategy for your retirement years.

Boomers lower home equity

“The recent housing crisis has worsened the already precarious financial condition of many older Americans,” according to the study. States where the home price index fell saw bankruptcy filings more than double as many boomers were left with little or no home equity.

The study, written at the Administrative Office of the U.S. Courts, found that the median age for bankruptcy filers rose to 44.9 years in 2007 from 37.7 years in 1994. People under 25 only accounted for 1.7% of filers in 2007, compared with 4% in 2002.

Can a reverse loan help?

If you are at least 62 and dealing with financial problems, do your best to avoid bankruptcy. Having some home equity could result in you getting a reverse mortgage. Borrowing with a reverse home mortgage should be explored only after you’ve evaluated other options for straightening out problems with money.

Pros and cons of reverse mortgages

The good thing about a reverse loan is that you can use the money for pretty much any purpose. A reverse mortgage also does not have to be paid back until you sell your home, move, or die. Plus, you can never owe more than the property is worth at time the reverse loan is repaid.

On the negative side, reverse mortgages have been known to have high fees. That could change though as the Department of Housing and Urban Development plans to offer a modified Home Equity Conversion Mortgage (HECM) with lower upfront costs. Another drawback is that you gradually strip your home of equity, which could leave you with little property to leave to heirs.

If you are considering bankruptcy, speak with a credit counselor and bankruptcy attorney to explore your options. A qualified housing counselor can also help you learn more about reverse mortgages.

Reverse Mortgage Mailings

The state of Oregon asked the company to include its name in all mailings and remove language that implies the reverse mortgage lender has a relationship with any government agencies. Mailings from Equipoint imply that its program is part of the federal stimulus package. They also feature a picture of financial guru Suze Orman with a quote from her that encourages seniors to consider reverse loans. The state sent a letter to EquiPoint in May and June but has apparently not heard back from the company yet, according to a spokeswoman for the Oregon Division of Finances and Corporate Securities.

Investigate Reverse Loans

The takeaway from all this is that it’s important to find out as much information as you can about a reverse mortgage lender before signing up. Unscrupulous companies can make all kinds of claims to get you to sign up for their products and services. Before doing business with any reverse loan company check out its reputation in your community. Contact your state’s Attorney General to find out if there have been any complaints.

Get HECM Counseling

If you really think getting a reverse home mortgage is a good move, talk with a qualified and reputable housing counselor. You can find a counselor approved to discuss the Home Equity Conversion Mortgage (HECM), the most popular type of reverse loan in the U.S., through the Department of Housing and Urban Development (HUD). No obligation Revers loan quotes from reputable lenders also can be found here.

In basic terms there are several debates going on at once.

First there’s the question of when benefits should occur; that is, what is “full retirement” age. The Social Security Administration has a list of ages and full-retirement benchmarks, retirement dates which currently run between age 65 and age 67.

But, there’s now a proposal to raise the full-retirement age to 70.

House Minority Leader John Boehner (R-OH) told the Pittsburgh Tribune-Review that he would like to see the retirement age increased to 70 — but only for people who will not retire for at least another 20 years. Such an extension would reduce financial strains on the system, but is age 70 the new 65?

The initial reaction to Boehner’s suggestion was both hot and heated for the most part, but think of it as the first shot for a change which is more modest, say making the new full-retirement benchmark age 67.5 or 68. Financial necessity as well as demographic realities may make such a change inevitable. Moreover, the general increase in the full retirement standard from age 65 to 67 serves as a precedent that can be followed with limited political liability — especially if the change is deferred for several years.

Privatization

What’s far more controversial is the idea of sacking Social Security altogether. No one says that outright of course, but that’s precisely what’s meant by “privatizing” the system.

The idea would be to dump Social Security in exchange for accounts invested in the stock market. This would be great for Wall Street — think fees — and likely great for stock values — think of more dollars chasing a relatively small number of stock issues. However, not everyone wins with the stock market. It’s foreordained that large numbers of seniors would not see stock market profits and dividends which would be sufficient to support them in old age. How such individuals would fare without the safety net of Social Security is unknown — and very unappealing.

Reverse Mortgages

In the new world of changing economics, where the US economy is not destined to robustly expand every year and where full employment is less certain than in the past, those who wish to do well in their later years need to supplement government programs with their own savings and investments.

This can be accomplished in large measure with private pensions and various investments. For those with real estate equity, a home can effectively be converted into either a source of monthly income, a lump sum, or with a reverse mortgage a device to pay off an existing mortgage balance. This would end monthly costs for principal and interest — thus increasing the value of income from other sources. Costs for property taxes, insurance and repairs would remain in place.

What’s best for you? There’s no single answer, but look ahead, speak with an attorney who specializes in elder law and consider the use of a fee-only financial planner.