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aarp and reverse mortgages

AARP sues HUD over Reverse Mortgages: What is a reverse mortgage

netitle.net ttp hughfitzpatrick.com In this video, real estate attorney hugh Fitzpatrick from Tewksbury Massachusetts discusses the lawsuit ...

AARP Weighs in on the 'New' Reverse Mortgage Math

Lori Trawinski, director of banking and finance at AARP’s Public Policy Institute, declines to call the changes positive or negative, but does admit that higher costs might make the loan less attractive — and new principal limits might mean fewer seniors will qualify.

“If you have an existing forward mortgage, that mortgage needs to be paid off before you can get a reverse,” she says. “So if someone is counting on a certain amount of reverse mortgage proceeds to be able to pay off a forward loan, it could be that with the new principal limit factors, they may not get enough proceeds out of the loan to do that.”

Higher upfront costs might also be a disincentive to consumers, Trawinski says.

“For about three quarters of borrowers, the upfront premium went from 0.5% to 2%, so that’s a significant increase. It may dissuade some borrowers from going forward with the loan,” she says.

Amy Ford, NCOA’s senior director of home equity initiatives and social accountability, agrees that these factors might influence consumer decisions and says the changes highlight the need for effective counseling.

Can a reverse mortgage help save an underfunded retirement?

What if you’re close to retirement (or retired) and the bulk of your net worth is tied up in the value of your home?

Such a situation is what experts call being “house rich, but cash poor.”

For many seniors, their largest retirement asset is their home. And so, of course, the financial institutions found a way for folks to tap that money. It’s called a reverse mortgage, which allows people who are 62 or older to borrow against their home’s equity.

Unlike a traditional home loan, with a reverse mortgage the borrower doesn’t have to make monthly payments. The lender doesn’t collect until the homeowner moves, sells or dies. When the home is sold, any equity that remains after the loan is paid off is distributed to the person’s estate. If heirs want to keep the home, they have to pay off the mortgage. At least the loan is limited to the market value of the home.

The loan size depends on the borrower’s age, how much equity is in the home and the current interest rate. The loan can be disbursed as a line of credit, a lump-sum payment, fixed monthly payments or a combination of those.

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