Reverse Mortgage Loan Blog

A reverse mortgage basically means income to homeowners 62 and older who have little or no money owed on their homes. But Johnny in Tulsa thought his father received a misleading letter. He says “There’s no way my dad’s home is worth over $200,000! But the letter says ‘Uncle Sam wants to help you’ and my dad thinks someone has come out and physically appraised his home. Please tell us the real deal!”

A company representative says Uncle Sam on the letter refers to the fact it’s a federally insured program.   The estimated value listed is not the result of a physical appraisal but a computer generated model based on county records.

Here’s additional information from the Oklahoma Society of CPAs:

Reverse Mortgages: The Pros and Cons of Cashing In

A reverse mortgage can be a powerful tool for converting home equity into cash. However, reverse mortgages present some financial risk. The following  information, provided by the Oklahoma Society of CPAs,  presents the pros and cons of reverse mortgages.

How Reverse Mortgages Work

Reverse mortgages work like traditional mortgages, only in reverse.  Rather than paying a lender each month, the lender pays the homeowner.  These payments are actually cash advances against a home’s equity. The maximum amount that can be borrowed is usually based on the age of the homeowner, the appraised value of the home and the current interest rate.

Generally, more equity in a home means the homeowner is older and the
interest rate is lower, which typically means there is a larger amount of money available. Most lenders allow the choice to receive the payment as a lump sum, in regular monthly payments, as a line of credit that can be drawn against the home or as a combination of these above options.

The home remains the homeowner’s property and he or she remains responsible for property taxes, operating expenses and maintenance. Because no payments are made on the loan, the balance owed increases each month as interest is applied and compounds.

Who Qualifies?

To qualify for a reverse mortgage, applicants must be age 62 or older,  and must occupy the home as their principal residence. The home must be owned free and clear or have a small outstanding mortgage balance that can be paid off with the reverse mortgage. Unlike a traditional mortgage, there are no income, employment or credit-qualifying requirements.

What About Repayment?

With a reverse mortgage, repayment is due upon death, sale of the home, or when it is no longer occupied as the principal residence. When payment is due, there is no requirement the property be sold, only that the loan be repaid. This may be achieved through the sale of the home or through other resources.

Pros of Reverse Mortgages

* Cash payments received are tax-free since they are loan proceeds and
not income, and they generally do not affect Social Security or Medicare benefits;

* There are no minimum income requirements to qualify and no credit
checks;

* The money can be used for any purpose; and

* It can create a life long cash flow.

Cons of Reverse Mortgages

* Reverse mortgages are complex. In fact, attending a counseling session is required prior to applying;

* Eligibility for state and federal government assistance programs such as Medicaid may be affected;

* Reverse mortgages can have very high up-front closing costs. For homeowners considering a move, a reverse mortgage may not be the best decision. They make the most sense for those who plan to stay in their homes permanently;

* Reverse mortgages are relatively expensive. The interest is added to the loan balance each month, and the total interest owed increases greatly over time as it compounds; and

* A reverse mortgage uses up a home’s equity, so it reduces what is left to leave to heirs.

Jimmy J. Williams, CPA, PFS, managing partner at Jimmy J. Williams &  Co., P.C., in McAlester, Okla., warned against using reverse mortgages as sole support during retirement and cautioned its use solely in conjunction with other methods. “One final warning about reverse mortgages, the amount of advances on the loan may trigger a payment, before the planned date, should the housing market suffer a severe decline and the equity of the home is not sufficient to collateralize the loan advances,” Williams said.

The home is likely to be a person’s most valuable asset. Before tapping into a home’s equity, consult with a CPA who can examine the homeowner’s financial situation and help determine if a reverse mortgage makes sense.

With more than 6,000 members in public practice, industry, government and education, the OSCPA is Oklahoma’s only statewide professional association of CPAs. Since 1918, the organization has continued to provide professional education, conduct quality reviews and promote and maintain high standards of integrity and competence within the accounting profession. Visit  www.KnowWhatCounts.org for a free CPA referral and 30-minute consultation.

Found here.

Bookmark It

Hide Sites