Monday, January 11, 2016

Reverse Mortgages - Pros and Cons

            In 1988, in an effort to keep older Americans in their homes, Congress passed the Reverse Mortgage bill, which authorized the Federal Housing Authority (FHA) and the United States Dept. of Housing and Urban Development to guarantee lenders who made home equity conversion mortgages.  These specialized loans are limited to individuals 62 years or older for loans secured by their primary residence, and for a loan amount that provides a sufficient equity cushion so that at maturity the loan may be repaid.  Reverse mortgages can be used on single family homes, condominiums and certain manufactured homes.

            Reverse mortgages do not require any payment of principal and interest as long as the borrower is alive or resides in the home as the primary residence.  Interest on the reverse mortgage (which can be fixed or adjustable) accrues until the loan is repaid.  The homeowner/borrower must still pay all taxes, insurance and maintenance on the residence. 

This waiver of payment is the main benefit of the program.  For example, a homeowner with a $250,000 mortgage paying interest at 5.5% with fifteen years left will be paying $1,419.47 each month in principal and interest. With a balance of $167,000 after fifteen years, and a home value of $400,000, a homeowner over 62 could obtain a reverse mortgage of $191,200, pay off the earlier loan, pay all closing costs (which are generally higher than most loans and one source of complaints about reverse mortgages) and have about $20,000 available to pay taxes and insurance (or a vacation).  After closing, the borrower will have the $1,419.47 in his or her pocket each month, an amount that may mean the difference between selling the home and keeping the home.

The funds from a reverse mortgage can be received in cash at closing, or available as a line of credit for future withdrawal.  The availability of a line of credit at closing requires that the borrower have sufficient equity for the new loan (in many cases, paying off the existing loan plus closing costs reduces or eliminates the amount available to borrow).  The proceeds from a reverse mortgage are not generally considered income and are not taxable, and will not affect social security or Medicaid benefits, but if the proceeds are held as liquid cash, that sum could disqualify a person from certain benefits and should be reviewed.

Loan repayment occurs when the homeowner dies, abandons the home or defaults under the terms and conditions of the loan (such as failure to pay taxes).  For death or abandonment, the homeowner or his/her family gets twelve months to sell the property to pay back the loan.  If the loan is not paid back, HUD may proceed to foreclose the loan, recover and sell the property to satisfy the debt.  Since interest is accruing without repayment, the value of the property may not be sufficient to pay-off the loan.  Unlike conventional mortgages (recourse loans), the borrower or the borrower’s estate is never liable for the loan or a deficiency due to the property being worth less than the loan balance (a non-recourse loan). 

Since their introduction, reverse mortgages have become popular; there are presently nearly 500,000 active loans. Originally a refinance only program, the law was revised in 2009 to allow these loans to be used to purchase a new home, so long as the borrower can pay the difference between the reverse mortgage loan amount and the purchase price of the new home.

There are several criticisms of the reverse mortgage program.  High upfront costs are an issue and are frequently not properly discussed with borrowers.  Interest rates are higher than conventional loans.  Pressure sales tactics (including late night TV ads) have encouraged seniors to take out reverse mortgages, spend the money on vacations and gifts, without consideration of the ability to pay and maintain the property going forward. 

Some elderly homeowners have been duped by the reverse mortgage/repair scam.  An inspector tells an elderly person that he or she need many thousands in repairs or the home will collapse.  Many cannot afford these “repairs,” but the scammer refers them to a home equity mortgage lender who arranges the reverse mortgage (even though the repairs are bogus or not necessary), taking huge fees from the unsuspecting owner desperate to fix the home.

Finally, some of the biggest critics are the children, who discover after their parents die that their house inheritance is worthless due to a reverse mortgage debt greater than the value of the home. Because of these issues, and the high default rate of nearly one in ten homes, HUD tightened lending requirements earlier this year to ensure that lenders carefully review borrowers’ financials to be sure they can continue to pay taxes and insurance required on the home.  In some cases, loans that used to be granted are now denied, and in other cases the amount loaned will include a required set-aside for payment of taxes and insurance, reducing the amount available to the homeowner.

A reverse mortgage can be a great tool for many homeowners, but it is a program that should be carefully reviewed to ensure that it fits an individual’s needs. Discussions with a CPA, your children and a HUD loan counselor are a must before taking out a reverse mortgage.

Michael J Posner, Esq., a partner in Ward Damon a mid-sized real estate and business oriented law firm serving all of South Florida, with offices in Palm Beach County.  He serves as the HUD Foreclosure Commissioner for the state of Florida.  They can be reached at 561.594.1452 or by e-mail at


  1. Misconceptions about reverse mortgages may cause homeowners to avoid consideration of these complex loans. Or, eligible seniors might proceed too hastily without realizing all the possible repercussions of their financial decisions.

    reverse mortage

    1. Mortgage Loan In Chennai Apply 9840136583 For Patta Land Mortgage Loan, Vacant Land Mortgage Loan, UnApproved Land Mortgage Loan, House Mortgage Loan, Property Mortgage Loan, Commercial Mortgage Loan, Industrial Mortgage Loan, DTCP Land Mortgage Loan, CMDA Land Mortgage Loan.

      Mortgage Loan in Chennai

  2. Hello everybody, this is awfully brilliant blog in terms of features, its quality is actually considerable.

  3. If you haven’t paid your credit card bills in several months you may be facing a lawsuit from either a credit card a company or a collection agency.
    debt lawyer

  4. Wow really nice blog. Looking forward to read more effective information by your blog, keep sharing. Have a look at Real Estate Attorney also if it could help in any means

  5. Hi, You explained the topic very well. The contents has provided meaningful information thanks for sharing info

    Real Estate Lawyers

  6. Hi, You explained the topic very well. The contents has provided meaningful information thanks for sharing info

    Real Estate Lawyers

  7. Hi, You explained the topic very well. The contents has provided meaningful information thanks for sharing info

    Real Estate Lawyers

  8. Hi, You defined the blog very well. I love your post . Excellent and Innovative post.. Thank you so much...
    Real Estate Closing

  9. Awesome post, Thanks for sharing useful and informative post.
    Billionaire Real Estate

  10. This is definitely one of the best articles I have read in this blog. Thanks for sharing the post. I want you to post some other articles on the same.
    Property Developers in Bangalore

  11. how do i become a entertainment and sports attorney?
    Dui lawyer Arlington Va

  12. It was a great effort by the Congress to pass the Reverse Mortgage bill to authorise Federal Housing Authority and the United States Dept. of Housing for older men. My uncle used it. It is really nice for him. He is living happily now.
    Snowmass Real Estate

  13. There are so many things about the housing market that I don't understand but need to. My wife and I decided to buy our first home and I'm freaking out trying to understand mortgages and how they work. This helped me a ton and its good to know that there are lawyers that can help people like me who don't know what they are doing.

  14. nice blog!!! well written, check here for similar work

  15. Thanks for taking the time to discuss that, I really feel strongly about it and love learning more on that topic. If achievable, as you gain competence, would you mind updating your blog with more information? It is highly helpful for me.
    Attorney Marietta GA Criminal Attorney

  16. This discussion unexpectedly takes my attention to join inside. Well, after I read all of them, it gives me new idea for my blog. thanks
    car crash

  17. Nice post. I love the valuable info you provide on your article. Criminal defense attorney is the term used to describe physical and mental injuries that occur because of someone else's negligence, intentional actions, or strict liability. Thank you too much. Keep posting.
    Car Wreck Lawyer

  18. Thank you for sharing such great information. It was very informative and has help me in finding out more detail about Mortgage Loan!

  19. Hello Everybody,
    My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:( Thank you.


    1. Name Of Applicant in Full:……..
    2. Telephone Numbers:……….
    3. Address and Location:…….
    4. Amount in request………..
    5. Repayment Period:………..
    6. Purpose Of Loan………….
    7. country…………………
    8. phone…………………..
    9. occupation………………
    11.Monthly Income…………..

    Email Kindly Contact:

  20. Great Blog i appreciate you find and visit here more detail about fha loan calculator thank you

  21. you are doing great job, but i want to add simple advantage of reverse mortgage which is For cash-strapped retirees or those looking for a second source of income a reverse mortgage loan can be the way to achieve their goals.
    for more details i recommend because this site contain many informative knowledge regarding mortgage, reverse mortgage and other lender's issues. hope this will helpful for your readers :)

  22. Thank you for sharing such great information.
    It is informative, can you help me in finding out more detail on
    what is reverse mortgage.

  23. The beneficiaries have a year to choose on the off chance that they need to keep the house and pay off the
    Reverse Mortgage.

  24. Thank you for sharing this information. It has helped me to know more about
    ideal cibil score for home loan