|For Families & Friends |
A reverse mortgage could be an ideal way for your loved one to benefit from the investment they’ve made in real estate. If you are assisting a family member or friend who is age 62 or older, you should understand the facts about reverse mortgages too:
An Improved Quality Of Life
A reverse mortgage can provide your loved one with a new source of tax-free (Consult your tax advisor) money for life’s necessities, or the little luxuries they might not otherwise be able to afford.
Financial Independence Means Dignity
A reverse mortgage enables eligible homeowners to tap into money that’s theirs, and avoid having to depend on relatives for financial assistance.
Keeping The House
Not only will they’ll retain full title to their home, very often the reverse mortgage funds they receive will enable them to keep their home.
Once the last-remaining homeowner passes away while living in the home, their heir(s) can keep the home by obtaining a new mortgage, or using other assets to payoff the reverse mortgage. If the heirs are not interested in keeping the home, it can be sold to repay the loan. Any money left over then goes to the estate to be shared per your loved one’s last wishes.
Costs & Fees
Like any loan, interest will be charged on the outstanding loan balance. A monthly servicing fee will also be added to the outstanding loan balance each month. This compensates the lender for administrative services including making cash advances and changes requested to the payment plan, etc. A reverse mortgage is different from ordinary loans, however, in that these costs will not come due until when the loan is paid off. This occurs when the home is no longer the primary residence, the home is sold, or the estate is settled. There are no “up-front” funds needed to obtain a reverse mortgage because the closing costs are usually paid directly out of the reverse mortgage proceeds. Closing costs can vary depending on the value of the home and the county it’s located in.
Because reverse mortgage proceeds are viewed as loan advances, and not income, the IRS does not consider them taxable income. Similarly, having a reverse mortgage should not affect your loved one’s Social Security or Medicare benefits. If they receive SSI, Medicaid, or other public assistance, their reverse mortgage loan advances are considered "liquid assets" if they keep them in an account past the end of the calendar month in which they receive them. Borrowers must be careful not to let their total liquid assets become greater than these programs allow. (Consult your tax advisor).
Counseling A Loved One
As is the case with virtually any financial services product, there’s always the chance a disreputable reverse mortgage provider might take advantage of a borrower. If you’re advising a loved one it’s important they:
- Lookout For Scams
As is the case with any product, there are always people who seek to take advantage of others. Things to look for include any person that attempts to sell them an annuity using the proceeds of a reverse mortgage. Or those who suggest a younger spouse, under age 62, should be removed from the title of the home in order to qualify. These practices can have unfortunate consequences.
- Work With A Reputable Lender
M&T Bank is one of the country's most highly regarded regional banks. For over 150 years, we’ve built our business on a tradition of reliability and responsiveness to the needs of our customers, while adhering to the highest ethical standards. As an active member of NRMLA (National Reverse Mortgage Lenders Association), we subscribe to the NRMLA Code of Conduct and Best Practices Standards created to protect borrowers from predatory lending practices associated with reverse mortgages. A reverse mortgage provider for over 10 years, our reverse mortgage specialists receive comprehensive training on how to protect the interests of our customers and prospective customers.
- Take Advantage Of The Process
The reverse mortgage application process requires that borrowers complete reverse mortgage counseling prior to applying. Although this is a simple step, and one that can be completed over the telephone if that’s the borrower’s preference, it is another opportunity to ensure everyone understands how a reverse mortgage works.
- Know The TALC
TALC is short for "Total Annual Loan Cost." It combines all of the costs of a reverse mortgage into a single annual average rate and can be very useful when comparing one type of reverse mortgage to another. Reverse mortgages vary in term of their features, benefits and costs. So it’s not always easy to compare "apples to apples." If your loved one is considering a reverse mortgage, be sure to ask the lender or counselor to explain the TALC rates for the various reverse mortgage product options.
- Involve Advisors
Family members, friends and professional advisors can provide outside counsel if your loved one is unsure whether a reverse mortgage makes sense for them. The lender you select should welcome your participation in the process, if that’s your loved one’s wish, and encourage everyone to ask as many questions as possible.
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