TOP INSURANCE LAWYER TELLS YOU WHAT YOU NEED TO KNOW
Building up the family nest egg is hard work. Many seniors today, despite the diversification in their portfolios, have lost almost half of their life savings due to economic woes. This is causing panic in many aging Americans.
“How are they to recover this lost savings? Many of them live very active lives and may live another 20 or 30 years. With talk of deflation and predicted hyperinflation it is prudent for today’s seniors to consider the next steps to remain financially independent through their gol
den years,” says Frank N. Darras, the nation's top insurance lawyer and California insurance lawyer.
"Reverse mortgages are becoming very popular and has been shopped by lenders and targeted to homeowners over 62. This type of mortgage lets seniors convert equity they have built up in their homes into cash," says Darras. "This may be a viable option but it is not without risk."
Here is how it works:
Today's reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allow senior citizens to use home equity and not have to make monthly payments on the money they receive. According to HUD, the HECM is considered a safe plan that helps senior citizens have greater financial security. See http://tinyurl.com/q4o97.
"You must be very careful with this offering," warns Darras. "Even when the government is promising reverse mortgages are a safe bet, there are some pitfalls and the fine print needs to be examined carefully."
“There are costs associated with an HECM. The lender can charge origination fees up to $2500 and although capped at $6000 that is a lot of money for a senior to come up with on a fixed income. You can roll that fee into the reverse mortgage but that is very, very expensive. There are also closing costs, mortgage insurance premiums, servicing fees and interest,” says Darras.
"Once you have an estimate of what the costs will be, you will still have property taxes and hazard insurance. Work with a trusted financial adviser before getting into a reverse mortgage," says Darras.
“Most importantly, make an educated decision and don’t let fear of the future drive this important decision. New legislation and lower interest rates promise to make it more attractive to borrow this way, however, it can cost you in the long run, if you are not careful,” says Darras.
"No matter what, the loan will have to be repaid somehow, in full. Usually that occurs upon the death of the homeowner. Understand other restrictions could cause premature payback of the loan so make absolutely sure you know what you are signing," says Darras.
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