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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 ...

Bankrate Reminds Reverse Mortgage Cautions: 3 Big Things To Plan For

Mortgages can seem complicated enough, so many people eligible for a reverse mortgage are hesitant because it can sound doubly complex. In fact, a reverse mortgage is straightforward. A reverse mortgage works like this: homeowners 62 years or older are eligible to borrow money because of the equity they’ve put into their homes. These homeowners can even borrow against the home if it’s not completely paid for yet, as long as they pay off the remainder of the mortgage when they take the loan. This is an attractive option for people who need increased cash flow and want to stay in their homes. They’ve put equity into the home, now they get to take equity out.

Bankrate reminds homeowners considering a reverse mortgage that the money they borrow can be used for any purpose — a daughter’s wedding, home improvements, medical expenses, a bucket list trip down the Nile River, whatever it may be. As Bankrate also reminds us: “The loan balance does not have to be repaid until the borrower dies, sells the home or permanently moves out.” There are reasons eligible homeowners might want to think twice, however, before pursuing a reverse mortgage, according to Bankrate and AARP. Fees can go high on reverse mortgages, so — as always — it’s smart to carefully consider all the details before signing up. (For this reason, homeowners are required by law to get free third-party financial counseling before a reverse mortgage.

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.

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