Editor’s Note: The information in this column is not intended to provide legal advice, but to provide a general understanding of the law. All readers with a legal problem, including those whose questions are discussed here, should consult a lawyer for advice on their particular situation.
While I love Tom Selleck and his Sackett films, I don’t think he (or anyone in Hollywood) should be giving me financial advice. There is currently a marketing blitz targeting seniors to get them to take out reverse mortgages. But, as the old saying goes, “If it sounds too good to be true, it probably is.” Be very careful with reverse mortgages.
Let me explain the term “reverse mortgage” to you. This is a type of home equity loan now permitted by the Texas Constitution. It allows Texas homeowners, aged 62 or older, to borrow against the equity in their home without having to pay off mortgage debt during their lifetime, as long as they continue to live in their home and keep up to date. their property taxes and insurance payments. . The purpose or intention of reverse mortgages is to provide seniors with the means to stay in their home for the rest of their lives by converting the equity in their home into cash that can be used to pay housing costs. medical care or other costs of living.
This particular type of home equity loan is called a “reverse mortgage” because the payments on the mortgage are supposed to be reversed – from the lender to the homeowner. Unlike a home equity loan where the owner is required to immediately begin repaying the principal amount of the loan in equal monthly installments that amortize and fully repay the loan on the due date, disbursements paid to the owner under a reverse mortgage simply earns interest, including interest. on interest, until maturity, when the loan balance, consisting of principal and interest, is repaid to the lender in a final lump sum payment. A common misconception about reverse mortgages is that the transaction involves the transfer of title to the home to the mortgage lender in exchange for monthly payments. But, a reverse mortgage is simply a loan secured by a lien on homestead – much like the lien on a conventional or “term” mortgage.
Closing costs are similar but comparatively higher than those charged for a conventional mortgage. FHA-insured HECM reverse mortgages, for example, which account for 90 percent of all reverse mortgages made nationwide, have a 2 percent loan origination fee payable to the mortgage lender, a 2 percent FHA mortgage insurance premium and an ongoing annual MIP premium of 0.5% factored into the monthly interest rate and a management fee of $ 35 per month set aside for payment to the manager of loan over the term of the loan. Other fees and charges are comparable to other mortgage loans.
A reverse mortgage is a non-recourse loan; the owners have no personal responsibility for the repayment of the loan. Homeowners are not required to make any repayments during the term of the loan, and the full loan amount owed, including all amounts advanced and accrued interest (including interest on interest), is usually repaid on the proceeds. sale when the homestead is sold by the borrower or by the borrower’s estate after the death of the borrower or the last of the borrowers. When a reverse mortgage becomes payable, the lender or noteholder should consider only collection against the homestead under their mortgage as the exclusive remedy. It is important to understand that the homestead will have to be sold or that the borrower’s heirs will repay the loan from the other assets of the estate if the borrower’s family wishes to retain the homestead.
Economic experts warn reverse mortgages could be the next big mortgage bankruptcy. A reverse mortgage could force the property to be sold for repayment. Therefore, anyone seeking a reverse mortgage should consult their estate planning lawyer. In the meantime, do your research (Mr. Selleck is NOT a good investor himself) or look for a copy of the October 2009 issue of Consumer Reports and read their article on reverse mortgages.
Sam A. Moak is a lawyer with the Huntsville law firm of Moak & Moak, PC. He is licensed to practice in all areas of law by the Supreme Court of Texas, is a member of State Bar College, and a member of the Real Estate, Estates and Trusts Law Section of the State Bar of Texas. www.moakandmoak.com