Monday, March 07, 2005
Taking the mystery out of reverse mortgages
[Robert J. Bruss, "Pros and cons of tax-free senior citizen reverse mortgages," The Wichita Eagle, 6 March 2005.]
The Wichita Eagle ran a great overview of reverse mortgages for seniors over the weekend. Tapping into the financial power of these for long-term care could turn the nursing home market into a viable system once again and ultimately save Medicaid. People will need to be forced to exercise this option before receiving Medicaid assistance, however, for there is little incentive to whittle away your own assets if you have the option of spending someone else's instead:
What is a reverse mortgage? Exactly the opposite of a traditional home mortgage, which requires monthly payments from the borrower to the lender, a reverse mortgage creates payments flowing from the lender to the borrower.
- To be eligible, the house or condo owner must be 62 or older. To qualify for a senior citizen reverse mortgage, the property must be an owner-occupied single-family house, condominium or manufactured house on an owned lot.
- Only the residence is liable for eventual repayment of a reverse mortgage. There is never any personal liability for repayment even if the home decreases in market value or the total amount owed exceeds the home's value when the loan matures.
- Contrary to widespread myth, the reverse mortgage lender does not take title to the home.
Three major nationwide companies provide reverse mortgages:
- FHA has over 90 percent of the market. Their home equity conversion mortgage interest rate (HECM) is tied to the one-year Treasury Bill index, plus a margin.
- Fannie Mae "Home Keeper" reverse mortgages have a higher limit, currently almost $360,000 (higher in Hawaii and Alaska).
- Financial Freedom Plan reverse mortgages have no maximum limit. They appeal mostly to owners of homes worth more than $500,000. However, these reverse mortgages are not available in all states.
Use a calculator to compare reverse mortgages. The best way to compare reverse mortgages is to use an Internet calculator. I've found the best free calculator is at www.financialfreedom.com.
The major drawback of reverse mortgages is the senior citizen homeowners will be reducing their home equity as they receive payments in order to comfortably enjoy their retirement years.
The result is greedy prospective heirs of senior citizen homeowners often discourage obtaining a reverse mortgage, realizing that to do so reduces their inheritance. But heirs who care more about the homeowner than themselves encourage seniors who need additional income to obtain a reverse mortgage so they can live financially comfortable.
[Stephen A. Moses, "Project Proposal: Controlling Medicaid Long-Term Care Costs," The Flint Hills Center, January 2004.]
[Robert J. Bruss, "Pros and cons of tax-free senior citizen reverse mortgages," The Wichita Eagle, 6 March 2005.]
The Wichita Eagle ran a great overview of reverse mortgages for seniors over the weekend. Tapping into the financial power of these for long-term care could turn the nursing home market into a viable system once again and ultimately save Medicaid. People will need to be forced to exercise this option before receiving Medicaid assistance, however, for there is little incentive to whittle away your own assets if you have the option of spending someone else's instead:
What is a reverse mortgage? Exactly the opposite of a traditional home mortgage, which requires monthly payments from the borrower to the lender, a reverse mortgage creates payments flowing from the lender to the borrower.
- To be eligible, the house or condo owner must be 62 or older. To qualify for a senior citizen reverse mortgage, the property must be an owner-occupied single-family house, condominium or manufactured house on an owned lot.
- Only the residence is liable for eventual repayment of a reverse mortgage. There is never any personal liability for repayment even if the home decreases in market value or the total amount owed exceeds the home's value when the loan matures.
- Contrary to widespread myth, the reverse mortgage lender does not take title to the home.
Three major nationwide companies provide reverse mortgages:
- FHA has over 90 percent of the market. Their home equity conversion mortgage interest rate (HECM) is tied to the one-year Treasury Bill index, plus a margin.
- Fannie Mae "Home Keeper" reverse mortgages have a higher limit, currently almost $360,000 (higher in Hawaii and Alaska).
- Financial Freedom Plan reverse mortgages have no maximum limit. They appeal mostly to owners of homes worth more than $500,000. However, these reverse mortgages are not available in all states.
Use a calculator to compare reverse mortgages. The best way to compare reverse mortgages is to use an Internet calculator. I've found the best free calculator is at www.financialfreedom.com.
The major drawback of reverse mortgages is the senior citizen homeowners will be reducing their home equity as they receive payments in order to comfortably enjoy their retirement years.
The result is greedy prospective heirs of senior citizen homeowners often discourage obtaining a reverse mortgage, realizing that to do so reduces their inheritance. But heirs who care more about the homeowner than themselves encourage seniors who need additional income to obtain a reverse mortgage so they can live financially comfortable.
[Stephen A. Moses, "Project Proposal: Controlling Medicaid Long-Term Care Costs," The Flint Hills Center, January 2004.]
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