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Reverse mortgages: facts over rhetoric

Countless sitcom stars of the seventies and eighties once entertained television audiences on a weekly basis. Their characters are burned into our memories because of the outfits they wore and the catch phrases they uttered.

Decades later, Fonzie has traded in his leather jacket while Magnum P.I. shed his Hawaiian shirt for clothing more suited for commercial spokesmen. Both former prime time icons have become known for hawking reverse mortgages.

In their respective sales pitches, Henry Winkler and Tom Selleck inform qualified homeowners that a reverse mortgage allows them to use some of their home’s equity in retirement. All the while, they can continue to stay in their home for the foreseeable future.

Their spiel is condensed into a 30 to 60-second commercial. Details are scarce, raising more questions than answers.

Most reverse mortgages are issued as Home Equity Conversion Mortgages (HECM). They are insured by the Federal Housing Administration. Non-HECM reverse mortgage lenders are an option. However, the loans lack the consumer protections that HECMs have.

Specific qualifications include:

  • Ages 62 or older
  • Couples must be legally married with both named on the loan even if they are not a co-borrower
  • The home must be their primary residence
  • Couples own the home outright or enjoy a significant amount of equity
  • The home meets all FHA property standards and flood requirements
  • No active liens
  • No delinquent federal debts

Before the mortgage is approved, spouses must both attend a mandatory counseling session with a Home Equity Conversion Mortgages (HECM) counselor approved by the Department of Housing and Urban Development. It helps applicants better understand the reverse mortgages.

Applicants benefit from the point of view a neutral third-party professional without a financial interest to provide both positives and negatives. One of those drawbacks is the extent that a reverse mortgage could deplete equity based on the amount borrowed and value of the home.

Homeowners must also continue paying property taxes, homeowners insurance and other maintenance costs.

Commercials make compelling claims. However, getting facts, not slogans can help with making educated decisions. A skilled and knowledgeable real estate attorney can provide much-needed insight.

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