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Reverse Mortgages

Reverse Mortgages. Sandy Fink ECO6226. What is a reverse mortgage?. Allows seniors 62 and over to use their home equity as an income stream: Loan amount is not taxable as income; No credit qualifications Loan amounts are capped by county:

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Reverse Mortgages

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  1. Reverse Mortgages Sandy Fink ECO6226

  2. What is a reverse mortgage? • Allows seniors 62 and over to use their home equity as an income stream: • Loan amount is not taxable as income; • No credit qualifications • Loan amounts are capped by county: • In 2004, loan ceilings ranged from $160,176 to $290,319

  3. Why haven’t we heard about this before? • Created in the early 1960’s • Reverse mortgage agreements written in the early 1990s carried high interest rates and received bad press due to appreciation clauses: • New Jersey woman moves to nursing home: • Had taken a reverse mortgage 18yrs ago, and has received $312.00/month; 11.5% interest rate, TALC=13.43% • For $67,586=total advanced payments; • $158,218.19 includes 11.5% compounded interest… Bank has 100% appreciation interest as clause in contract….a total of $416,500!! CAVEAT EMPTOR!

  4. Then…and now • Truth in Lending Act & Real Estate Procedures Act of 1974 • Home Ownership and Equity Protection Act of 1994 (HOEPA) • Home Equity Conversion Mortgage (HECM) is FHA insured • FHA insurance costs up to 2% of loan amount and .2% annual fees in addition to interest rate quoted • Counseling is required

  5. Facts & Figures • HECMs have tripled in the past few years: • 6,638 in 200 to 12,848 in the 1st 5 months of 2004 • Interest rates are at historical lows • Increasing medical care costs • Corporate pensions are now a “remember when?” • Baby Boomers are turning 60! • More and more elderly couples are childless or have no bequest motives.

  6. Advantages & Disadvantages

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