Senior Reverse Mortgage

When it comes to reverse mortgages, many financial experts are in agreement that an FHA reverse mortgage should be a senior’s last resort. Many experts suggest that seniors wait to get a reverse mortgage until they have depleted all other assets. Two long-time financial experts, however, disagree. A study conducted by Stephen Sacks, Ph.D. and Barry Sacks, J.D., Ph.D. for the Journal of Financial Planning found that seniors might actually benefit from using their home equity before other assets.

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Getting a reverse mortgage does several important things for seniors. These loans allow seniors to withdraw some of their home equity, repay their existing mortgage loan and defer payment until they die or move away. One thing that a reverse mortgage does not do is allow seniors to stop paying their property taxes. Borrowers who fail to pay these taxes will find their loan in technical default.

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On February 13, President Obama released his budget proposal for the 2013 fiscal year, which will control spending from October 1, 2012 through September 30, 2013. In this budget are two figures that will affect the reverse home mortgage in the upcoming year. The first figure is the score assigned to the Mutual Mortgage Insurance (MMI) fund, and the second is the amount of money set aside for housing counseling.

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Seniors who want to cash in on their home equity must follow a few important FHA reverse mortgage guidelines. Under these guidelines, reverse mortgage borrowers are required to use their home as their principal residence in order to keep their loan from coming due. This means that seniors who spend more than 364 consecutive days with a relative or in an assisted-living facility will be asked to repay their loan.

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Since the economic downturn in 2008, interest rates have hit record lows. On January 25th, the Federal Reserve released a statement telling the public that they expect to keep rates around zero percent through 2014. While this may not be great news for people trying to build their savings, it is fantastic news for borrowers.

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As reverse mortgages have increased in popularity, the confusion surrounding these loans has continued to grow. Many people are under the impression that reverse mortgages are just another way for lenders to increase their profits. It is true that many senior homeowners are sitting on a nice chunk of equity. But is it true that lenders are simply looking for a way to exploit that equity for their benefit, or are some financial experts spreading misconceptions that could potentially turn seniors off of a very beneficial loan product?

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There are three types of reverse mortgages available to consumers: single-purpose, proprietary and Home Equity Conversion Mortgages (HECMs). Single-purpose reverse mortgages are loans, funded by nonprofit and local government agencies, that must be used for a specific purpose. Due to this restriction, almost all borrowers opt for proprietary and HECM reverse mortgages.

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No loan is completely free. For a loan to be a worthwhile investment, lenders must charge their borrowers interest, closing costs and other fees. However, according to some experts, reverse mortgage fees are substantially higher than those charged on other types of home loans. To help you understand what you can expect to pay, here is a breakdown of the common reverse mortgage fees charged to borrowers.

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