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About Reverse Mortgages

Hermond Palmer
, Vice President, Director of Marketing
, Industrial Bank | 6/11/2014, 2 p.m.
Hermond Palmer, Vice President, Director of Sales & Marketing of Industrial Bank of Washington

Reverse mortgages — what are they? How do they work? Who should consider using them? In many cases when you start talking about something new, especially something new and related to personal finances, people can get a little nervous. No one wants to make a decision that, in the end, puts them in a worse position than when they started. A lot of people who are just learning about reverse mortgages have this type of concern. And because a lot of people are unfamiliar with reverse mortgages, there is more than a little skepticism as to the merits of this program.

To start, let’s clearly define what a reverse mortgage is. A reverse mortgage is simply a loan that is available to homeowners who are age 62 years or older, which enables them to convert part of the equity, the accumulated wealth, in their home into cash. The goal of a reverse mortgage is to provide people who are older and may have a limited income with the opportunity to use the wealth they have built up in their homes to help cover some of their living expenses.

Now, because reverse mortgages cater to the older population, there is concern around protecting our elders from the possibility they could be victimized by unscrupulous conmen, frauds and scam artists. This is a valid concern. The following is a brief list of questions to think about when considering a reverse mortgage.

How can a person receive payment from a reverse mortgage?

Money from a reverse mortgage can be received as a lump sum, as a stream of fixed monthly payments either for a set period of time or for as long as you live in the home, as a line of credit, or a combination of these options.

How can the money received from a reverse mortgage be used?

Money from a reverse mortgage can be used for anything as in to cover daily living expenses, pay off existing debts, cover property taxes, or prevent foreclosure.

Will getting a reverse mortgage impact an individual who is receiving government assistance?

It depends. Receiving a reverse mortgage will not affect regular Social Security or Medicare benefits. If however, a person is receiving Medicaid or Supplemental Security Income (SSI), all reverse mortgage proceeds must be used immediately (in the month received). Any residual reverse mortgage funds remaining in your bank account the following month would count as an asset and could potentially take that individual above the allowable limit making them ineligible for Medicaid.

Who pays the property tax?

It is the homeowner’s responsibility to make sure their property taxes are consistently paid in a timely manner.  If you do not, then you are considered to be in default in the terms of your Loan Agreement, which may be grounds for calling your entire loan due and payable. This is something practically all homeowners would like to avoid, as it typically presents a huge financial problem.

Why would a person not consider getting a reverse mortgage?

Anyone who would qualify, but is considering leaving their home within 2 to 3 years may not want to take out a reverse mortgage. With the upfront costs associated with a reverse mortgage being what they are, there may be other less expensive options available to meet a prospect’s needs. Anyone who plans to leave their home to their heirs may not want to consider a reverse mortgage because the loan would have to be paid back before ownership could be transferred.

A reverse mortgage is not for everybody. If you are considering a reverse mortgage, or would like to learn more about reverse mortgages, know that Industrial Bank is ready to help you find the answers you are looking for.

SOURCE: National Reverse Mortgage Lenders Association