I was nearly done with my submission on Reverse Mortgages, and had a senior-moment at the keyboard.

Sorry. To conclude my summary:

3)Can you take in a boarder to help with living expenses, or can you do vacation rentals if you have a reverse mortgage?
4)Who is responsible for taxes, maintenance, and insurance?
5)If the home burns down, who is out of luck?

Thanks for appending this to my just-sent comment, and for your interesting and informative show.
meredith

It appears my first e-mail (referred to in the post above) went a’gley in cyberspace. I’ll try to reconstruct it, and apologize for its length. You rightly pointed out this is a complex financial vehicle that isn’t nearly as simple as it sounds.

When you promo-ed “Reverse Mortgages,” I waited (*and waited*) eagerly for the segment, then found it interesting. But please do a fuller segment on this issue. As you said, home equity is many seniors’ major asset, and we need to get this one right.

Things I think many listeners would be interested to know more about:

Balloon mortgages were a useful instrument designed for people who expected to move or to be able to refinance before interest rates rose. For a loan to help a homeowner wishing to stay in their home until death, isn’t this type of loan fundamentally inappropriate?

1)CAN one refinance a reverse mortgage to avoid the balloon?

You stated: “counseling will be required, but that’s only $125″.

2) Who provides/trains these counselors? Won’t they be subject to the same pressures from lenders that assessors were under in the recent bubble (assess a high home value/promote the product or we won’t refer you any customers)?

Could the program send someone to a couple of these counselors and report on the process?

You stated: “Loan initiation fees are capped at 6% of the loan amount. That’s a lot if it’s $30,000, but might be all right if you expect to get $70,000.”

6% seems more appropriate as mortgage interest, not a mere loan initiation fee! On the maximum loan ($600,000), you’re paying $36,000 just to get the loan going? That would cover a lot of mortgage payments or roof tiles. And then come closing costs, loan insurance, mortgage stamp tax.

3) Can you figure a typical percentage of home value likely to be eaten by doing this deal?

4) Is the payment rate to homeowers who don’t take a lump sum fixed or variable?

You did a great job with the basics: A Reverse Mortgage is for homeowners at least 62 years of age. Payments can be lump sum, or monthly (over what time period?), and no repayment is due until the house is sold, and then the entire amount is due.

Insurance must be purchased so that heirs can’t be faced with money owned to the bank if the value of the house has fallen below the amount of the loan (plus the accrued interest).

4)But isn’t the homeowner paying the premiums on that insurance, and the bank getting the reward? Even if the market has risen substantially, the heirs still have to pay off the original sum with years of interst (perhaps ballooning). What is the effect of compounding on these loans?

If the kids had that much money, the parents would have sold them the house in the first place, so again, the real estate market increase likely in a long-term loan goes to the bank.

5) If you can meet the taxes, but can’t afford to keep up the home, can you be forced to leave? Who decides if you’re meeting your “obligation” to maintain “your” property (which is looking more and more like the bank’s property)?

6)Would a simple comparison of Reverse Mortgage to “Sale with Life Tenancy”, or to a simple Home Equity loan or line of credit be useful.

7) A man owns a home and lives there with his wife. He dies. What happens to his wife?

If you take out a Reverse Mortgage, you are probably cutting out a potential inheritance, which may be a perfectly reasonable trade-off for security. But are you secure in your home through your (and your spouse’s?) old age, free of mortgage payments, with some extra cash coming in? Or, have you just sold it at a fixed price to a broker who can charge you interest on his payments that can rise like that house in UP!

“You still own your home” was stated on the program, but it seems the main thing you still own is the right to pay taxes and upkeep, and if my information that you can’t rent it is correct, you’ve lost a significant possible source of money to defray those costs.

Most important to listeners may be, is there a point in this deal when you have to move out? Yes, you lose your home if you don’t keep making mortgage payments.

But can you outlive the right to stay in your home with a Reverse Mortgage?

I realize I’ve gone on much too long, but that last question should be succinct and ear-catching enough to be worth you finding out the answer for your listeners.

Thanks so much for the informative programming

Please put your wonderful crew back on this important topic.

Meredith

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