REVERSE MORTGAGES

Reverse mortgages are an excellent way to generate funds, if there is no other way to obtain the funds, and the mortgages are fully understood. Reverse mortgages should be looked at, in most cases, as a last resort.

The amount available under a reverse mortgage has been raised in some areas from $362,790 to $417,000. Because of this, some agents have been soliciting homeowners who have existing reverse mortgages to suggest that they replace those reverse mortgages with new reverse mortgages, thus freeing up some cash.

Replacing a reverse mortgage with another reverse mortgage to generate more cash sounds like a sensible plan. However, the costs of doing this can outweigh the advantages.

A reverse mortgage is expensive. The processing charges on a reverse mortgage are high. Replacing a reverse mortgage to generate $30,00o or $40,000 when the cost to initiate the reverse mortgage may be $15,000 or more is not a good idea. Unless replacing the mortgage will generate a significant amount of cash, it ought not to be done.

The home equity conversion loan is a non-recourse loan. The borrower will never owe more than the loan balance or value of the property, whichever is less, and the only asset against which the holder of the mortgage may take recourse is the house.

Many people do not appreciate that, if the family wishes to keep ownership of the home, they may not be able to do so by paying off the lesser of the mortgage balance or the appraised value of the home, because this is not what the reverse mortgage provides. The reverse mortgage simply says that the home equity conversion mortgage is non-recourse, so that the borrower or the borrower's estate may not be used by the holder of the mortgage - the collection remedy is foreclosure only. If the family wants to buy the house, on which the owed amount may be more than the value, they must deal with the holder of the mortgage at arm's length.

If you have any questions about whether to obtain a reverse mortgage or to rewrite an existing reverse mortgage, contact us and we will be glad to help you.