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LVAIC Retirement Seminar Outlines Reverse Mortgages

February 24, 2020, @ 12:04 PM

As a continuation of the LVAIC Retirement Seminar series, LVAIC hosted its third session on Monday, February 17 at Moravian College. This session hosted Steve Stelzman, Branch Manager at The Mortgage Company. Offering an overview of reverse mortgages, the benefits, and the negative impacts of reverse mortgages, Stelzman defined the entire program as giving the rights of a home to a lender who returns the transaction with a regular payment.

As a benefit, this allows individuals to pay off mortgages and receive additional monthly income over a certain period of time. However, this situation causes unintended consequences in many cases. For instance, the home is no longer considered to be an asset owned by the individual participating in the reverse mortgage. Further, closing costs, insurance, and interest add to the total cost of this process. Overall, the payments never stop until all parties are deceased or leave the home. Further, the lender will never allow the balance to be greater than the value of the home.

In terms of those interested in participating in this program, homeowners must be at least 62 years of age and must be the principle resident of the home. The interest rate is determined by the lender. Once meeting these requirements, interested parties can explore three different types of reverse mortgages:

  • Fixed rate monthly payment as long as one borrower resides in the property
  • Line of credit: you choose when to take the cash out
  • Lump Sum: take all the money available at one time

Upon decease or leaving the home, heirs have three options regarding next steps after the property was involved in a reverse mortgage:

  • Sell the home at market value, pay off the reverse mortgage
  • Payoff the reverse mortgage by taking out a loan. This follows the 95% Rule wherein heirs are only obligated to pay back up to 95% of the appraised value even if the reverse mortgage is higher.
  • Give the deed of the house back to the lender.

Overall, this may be a positive or negative option for individuals depending on the situation. Borrowers should keep in mind that since this program is a loan there will be a lien against the home and inheritance to any heirs is reduced. However, borrowers will not be able to borrow more than 60% of the equity of the home, and therefore will never be in debt. The appreciation of the home should offset any losses. Further, this program does allow homeowners access to the equity of the home without selling it or increasing monthly debt.

Future LVAIC retirement seminars will be forthcoming. More information will be available on the LVAIC website under the events section.

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