1 Reverse Mortgages A consumer perspective Kelli Jo Greiner, Elderly Health Care Programs Specialist Consumer Information Assistance and Advocacy Team August 6, 2004

2 Reverse Mortgages zLoan against your home that provides you cash for its value without selling it zLoan does not have to be repaid as long as the borrower lives in the home zUnlike other loans, you do not make monthly repayments zLoan is repaid when you die, sell the house or permanently move out of it zBorrower retains title and ownership zBorrower responsible for taxes and repairs

3 Reverse Mortgages zTo qualify yHomeowner must be 62 years of age or older yHome must be your primary residence yNo income or credit history required yMust have little or no outstanding loan balance on your current mortgage yCannot incur any other indebtedness on your home once you have the reverse mortgage ySome lenders require a free individual counseling session with a reverse mortgage counselor to help you decide.

4 Reverse Mortgages zHECM (Home Equity Conversion Reverse Mortgage) yOffered by Dept of Housing and Urban Development (HUD) yFederal Housing Authority (FHA) guaranteed loan yLoan amount based on your age, value of home, equity in home, where you live, interest rate, and payout method you select yCounty limit on the maximum you can borrow yNever have to repay an amount that exceeds the value of the home at the time the loan is repaid yCounseling session is required

5 Sample Loan Amounts z$120,000 home value Age62 Lump sum$62,600 Monthly$350 z $120,000 home value Age 72 Lump Sum$72,800 Monthly$450

6 Closing Costs zClosing costs and interest can be financed within the loan zInclude mortgage insurance (2% of home value) origination fee (2% of home value) and other closing costs (title search, appraisal, etc) z Costs vary, but an example for a $200,000 loan, costs range from $10,000-$14,000

7 HECM Reverse Mortgages to pay for LTC insurance zIn the future, upfront loan costs may be less if a reverse mortgage is used to pay for LTC insurance zHUD has the statutory authority to allow a waiver of the 2% mortgage insurance fee zHowever, the regulation to implement this provision has not been promulgated

8 Some General Considerations zFunds can be used to purchase LTC insurance or pay for care zLoans do not adjust for inflation zLTC costs may exceed the amount received through the reverse mortgage zMay be difficult for married couple to support LTC insurance for both with amount available from reverse mortgage zIn the future, upfront loan costs may be less if a reverse mortgage is used to pay for LTC insurance zHUD has the statutory authority to allow a waiver of the 2% mortgage insurance fee

9 Some General Considerations zHeirs can retain home by repaying reverse mortgage zHeirs can “keep the difference” if the home’s sale price exceeds the loan balance at the time the loan is repaid

10 Some General Considerations zConsumers for the most part are unaware of reverse mortgages zMust address the issue of “leaving my house to my kids” zFew people know about or have considered using a reverse mortgage for LTC zMust have objective, neutral sources

11 Spreading the word: The CMS Long-term care initiative zPurpose yIncrease consumer awareness of the options available to plan for and finance long-term care, including long-term care insurance and the use of reverse mortgages

12 Spreading the word: The CMS Long-term care initiative zAwareness Campaign yUnder development yWill promote financing options including the reverse mortgage/LTC insurance option

13 For Assistance…. zCall Minnesota Senior LinkAge Line® at (for all 87 counties) yAll staff are certified health insurance counselors yPhone, in person and community based assistance available