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The
National
Council on Aging study "Use Your Home to Stay at Home: Expanding the Use
of Reverse Mortgages to Pay for Long Term Care" report,
(January 2005) http://www.ncoa.org/attachments/ReverseMortgageReport3.pdf
funded by the Centers
for Medicare and Medicaid Services and the Robert Wood Johnson Foundation,
suggests that reverse mortgages could save Medicaid $3.3 billion annually
by 2010.
A
reverse mortgage is simply a mortgage loan with no payments due until the
home is sold or the surviving borrower moves out. Having access to
mortgage proceeds without the need to make payments in return can
dramatically improve cash flow. And eligibility is based on home ownership
and available equity, so income or lack thereof is not an issue. Proceeds
are available as a lump sum, a line of credit, or in monthly
disbursements. Monthly disbursements continue for the life of the survivor
so long as the borrower lives in and owns the home.
Reverse
mortgage borrowers can use the proceeds for any purpose; for necessaries,
for in-home health care, to prevent a foreclosure, to pay off credit
cards, or simply to return to or maintain their traditional lifestyle with
a sense of financial security.
A 79-year
old gentleman paying $896 per month on a $76,000 mortgage on his $130,000
home in Monroe County is replacing his conventional mortgage with a
reverse mortgage thus eliminating his monthly mortgage payment; a 72 year
old Philadelphia woman with a monthly cash flow shortfall will be
receiving $998 per month or a lump sum or line of credit of over $157,000
on her $300,000 home; an 82 year old Allentown man paid off his $38,000
mortgage on his $130,000 home, took a $10,000 lump sum for miscellaneous
expenses and still has a $55,000 rainy day fund line of credit from his
reverse mortgage; an 82 year old Philadelphia woman qualified to receive
$300 monthly or a lump sum of $38,000 on her $62,000 home.
With
regard to benefit programs, since the reverse mortgage is a loan and loan
proceeds are not income, having a reverse mortgage will generally not
affect social security or eligibility for Medicaid, SSI, or similar
programs.
Consumer
protections in the FHA program include a required counseling session with
an FHA approved counselor and strict limits on fees that can be charged.
And the FHA program eliminates the "doomsday" scenarios present in
earlier private programs. Monthly payments cannot stop so long as one
borrower resides in and owns the home; the loan is "non-recourse" so
only the home is involved, and the borrower retains home ownership with
the ability to benefit from appreciation or to sell the home and pay off
the loan at any time.
It should be
noted that the reverse mortgage must be in first position, that there are
FHA lending limits in each county, and that since fees are financed and
the effective cost decreases over time, reverse mortgages work best as a
long term solution.
Further
information is available on the following websites:
http://www.ncoa.org
http://www.hud.gov/buying/rvrsmort.cfm
http://www.aarp.org/revmort/
http://www.fanniemae.com/homebuyers/findamortgage/reverse/index.jhtml?p=Find%2Ba%2BMortgage
http://www.abanet.org/aging/hec.doc
Since 2003, John Krasja has focused on reverse mortgage lending for AFC
First Financial.
He can be contacted at jkrajsa@afcreversemortgage.com
or at (610) 433-7486. You can also visit
AFC Reverse Mortgage website at http://www.afcreversemortgage.com/index.html.
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