John R. Bullis: More thoughts about reverse mortgages
July 8, 2014
We don't believe reverse mortgages are for everyone. Many folks can find other answers to their cash flow problems. However, if the savings have not kept pace with the expenses and it looks like additional cash will be needed — or very helpful — in the future, it can be a solution to consider. If you are age 62 or older and you own your home or have a low balance owing, you could look into reverse mortgages.
Most reverse mortgages give you at least three business days after closing of the transaction for you to cancel the deal without penalty. If you want to cancel, you need to notify the lender in writing. Send that notification by mail, probably certified mail with a return receipt. Then you have to wait, maybe 20 days or so, for the lender to return any money you paid for the financing.
The mortgage origination fee can be up to $2,500 if the value of your home is less than $125,000. If the home is more valuable, the origination fee can be up to $6,000.
I met a gentleman a few months ago that had a need for $30,000 and he wanted to do a reverse mortgage for as much as possible. He did check around and found the deal he wanted. He felt the fees involved were reasonable to set up a reverse mortgage with the option of being able to borrow more in the future-sort of a line of credit. He spent a lot of time and effort to meet with various brokers for reverse mortgages. He found there is quite a difference in the level of knowledge and experience of the brokers.
If you begin looking at this, maybe you should talk to more than one broker to find the one that will serve you best. You know the main advantages is you get a loan (is not taxable income) and you have choices between monthly payments, line of credit, etc. You use most of the equity in your principal personal residence to provide quality of life benefits, like eating regularly.
If you die before selling the home, it is sold to pay the loan. Usually if the loan is greater than the sales proceeds, the mortgage insurance covers the shortfall. If you heirs want to own the home, they must pay the lesser of the loan amount or 95 percent of the appraised value at the time of the loan. No debt will be passed to your estate or your heirs in any event.
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It's a good idea to discuss this with your attorney or CPA before taking any action.
Did you hear? "There is only one thing about which I am certain, and that is there is very little about which one can be certain." — Somerset Maughan (1874-1965).
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.