Are Reverse Mortgages Safe? ................................................................................................................. When a deal seems too good to be true, it’s natural to wonder if it’s actually safe. Getting paid for taking a loan on your home certainly seems like a deal that’s too good to be true, so it’s natural to worry about the safety of a reverse mortgage.
The bottom line is that not only are they safe, but in some ways they are even safer than a regular home mortgage. The National Reverse Mortgage Lenders Association, or NRMLA, has made certain that there are many safeguards for the reverse mortgage programs that are available today. You can visit their site for a list of lenders that they approve.
The most popular of the reverse mortgage options is the HECM, or Home Equity Conversion Mortgage. This reverse mortgage actually is administered through HUD, the United States Department of Housing and Urban Development. This provides you as the lender with extra safeguards.
INTEREST RATE PROTECTION: HECM loans have an interest rate that does not vary with different lenders. The interest for all HECM loans is one that you as the borrower can choose to have adjusted either each month or each year based on the 1 year U.S. Treasury Constant Maturity Rate. This is a standard index that is published each week by the Federal Reserve.
LIMITS ON LOAN FEES: HUD regulates and limits origination fees and ensures that these fees may be financed as part of your reverse mortgage. What this means for you is that you can limit your initial expenses to almost nothing.
TOTAL DISCLOSURE: The TALC, or Total Annual Loan Cost, is a disclosure that the Federal Reserve Board requires. This is provided to you as a prospective borrower for a reverse mortgage and will show the total costs over the lifetime of the loan. You will be fully aware, before you sign anything, of all costs that will be involved with your reverse mortgage.
REQUIRED INDEPENDENT COUNSELING: Before any application for a reverse mortgage can be put through processing, it is a requirement that the applicant meets first with a counselor who is independent. This means that the counselor has no relationship to the lending institution or to you personally. AARP and HUD have a list of counselors available to review your proposed reverse mortgage and answer any questions that you might have. They will also offer alternatives for you.
NO DUE DATE FOR YOUR LOAN: Reverse mortgages do not become due during a homeowners' lifetime as long as they abide by the terms of the loan. There are no required payments and you have a lifetime right to live in your own home, giving you protection in the event of unforeseen circumstances.
NO PREPAYMENT OR CANCELLATION PENALTIES: You retain the option to pay off the loan at any time with no additional fees or costs and you have up to three days after the loan closes to cancel the loan for any reason.
PROTECTION OF ASSETS: The amount due on your loan can never be more than your home is actually worth. The title to your home will always remain yours. Even when the loan actually is due, the lender will never be paid more than the actual value of the house. Any value remaining beyond what is due on the loan goes to the homeowner or the estate.
