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Oct 13, 2008

Reverse mortgages: A great opportunityTom Scabaretireverse mortgages, HECM, senior citizens, HUD, HomeKeeper, National Reverse Mortgage Lenders Association Not familiar with reverse mortgages? You should be. A growing number of your senior customers, and their adult children, have been buying these innovative loans in recent years to augment retirement income, pay for long-term healthcare, or even pay for that dream vacation. According to the U.S. Department of Housing and Urban Development, the number of reverse mortgages issued has continued to grow at a phenomenal rate since the early 1990s when the products were first introduced. Consider that there are more than 20 million seniors with more than $2 trillion in home equity, according to 2000 census figures, and you will begin to appreciate the growth opportunity these unique loans offer. And this year, 2008, has great significance, as more than 8,000 baby boomers will turn 62 every day, which qualifies them for the product. That translates into another three million prospects. Reverse mortgages explained Reverse mortgages enable senior homeowners, 62 or older, to convert part of the equity in their home into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Borrowers will never be forced to leave their homes, provided they make their real estate property tax and insurance payments. There are three types of reverse mortgagesthe Home Equity Conversion Mortgage, Fannie Mae HomeKeeper and private reverse mortgage productsoffered by several lenders and designed for higher value homes. Borrowers can choose to receive the reverse mortgage funds as a lump sum, monthly income (for up to life), line of credit, or any combination. They make no monthly payments on a reverse mortgage during the life of the loan. The loan becomes repayable when the borrower sells the home or permanently moves out. In addition, the repayment amount can not exceed the value of the home and can be used for any purpose. An important consumer protection built into these loans is the requirement for independent, third-party counseling prior to application. This counseling session serves to provide an objective review of the program for the senior and their advisors to help them decide if it is the correct option. Reverse mortgages, although distinctly different from traditional mortgages, are still mortgages and have the same basic cost structure for closings costs. These fees would include items such as an appraisal, title insurance, document fees and other typical closing costs. One difference is that the closing costs of reverse mortgages are generally funded in the loan, so senior borrowers have no out-of-pocket expense. Qualification for this loan is simple, based on age and homeownership; there is no income qualification and only minimal credit review. Some typical questions include: What are the benefits of a reverse mortgage? A reverse mortgage provides easy access to the equity senior homeowners have in their home. There is no income or credit qualification, and best of all, no monthly mortgage payments are required during the life of the loan. What are the borrower qualifications? The borrower must be 62 or older and, of course, own a home! A reverse mortgage allows a borrower to live in their home for as long as they use the home as a primary residence. How much money can a borrower receive? The amount a senior homeowner is eligible for depends on their age, the value of the home, current interest rates and the specific reverse mortgage product selected. Generally speaking, the older a borrower is, the greater the benefit (i.e., more money!) available. How can the money be used? The money can be used to fund home repairs, pay off an existing mortgage, pay for medical expenses, purchase long-term care insurance, establish a resource to help grandchildren and loved ones, or to go on vacation! The money can be used any way the borrower wishes! Does the lender own my home? No. This is a very common misconception; a reverse mortgage is merely a loan on the property that can be repaid at anytime with no prepayment penalty. Will my children be against the idea? No. Experience has shown that many adult children see a reverse mortgage as a good decision for their parents. It provides the senior with independence and allows them to age in the home they love and raised their family in. So, if you agree that reverse mortgages present an opportunity to expand your business and revenues, your next step is to do your homework. There are several good sources for additional, objective information about this product and the senior market available on the Internet. Tom Scabareti is a reverse mortgage veteran with more than 10 years of experience and is an active member of the National Reverse Mortgage Lenders Association. He may be reached at (714) 679-9962 or e-mail [email protected].
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