In addition to the mortgage interest that the lender will ultimately collect, there will be some upfront costs. Typically, these would include an origination fee -- points -- that can be financed as part of the mortgage, a credit report, an appraisal and similar charges that any person borrowing or refinancing would have to pay for settlement costs.
While the money received from the reverse mortgage lender is tax-free (because all you are doing is borrowing from your own equity), you should be aware that such a mortgage may affect eligibility for other kinds of governmental assistance, such as health benefits. That is why most legitimate reverse mortgage lenders will require the borrower to obtain counseling before they make the loan.
According to the Reverse Mortgage Lenders Association, there are five steps in the process of obtaining such a loan:
• Awareness. You learn about this type of loan from articles such as this.
• Action. You then seek more information, either from a lender, the Department of Housing and Urban Development orAARP.
• Counseling. Most reverse mortgage lenders will require, as a condition for the loan, that the borrower go through educational counseling. The borrower must understand that there are risks involved with a reverse mortgage. The borrower must also recognize that, as discussed earlier, there are other options available that may not require giving up part of the equity when the home is sold.
• Application/disclosure. Once a borrower has completed the steps above, she will apply for the reverse loan and select the payout option she wishes. The lender is then required by the federal Truth-in-Lending Act to disclose the estimated total cost of the loan. Once the borrower receives these disclosures, she should shop around to see whether other lenders will offer a better deal.
• Processing. After the borrower decides whether she wants such a loan, and if so which lender she will use, the lender will process the application, obtain a credit report and an appraisal of the property and determine if there are any mandatory repairs that must be made.
Then, if all goes well, the borrower will have a reverse mortgage.
For more information about reverse mortgages, go to the Web at www.seniorsafehome.com or call the National Reverse Mortgage Lenders Association at 866-264-4466 for its free booklet, "Guide to Aging in Place."
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.
