Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. "A lot of people sign them without thinking, 'I could be put out of my house.'" ![]() " are counterintuitive and much more complicated than regular mortgages, which are complicated enough," said Constantine-Davis. HUD declined to comment because the case is not settled. What that remedy may be has not been determined. The judge in the case found for the plaintiffs and asked HUD to find a solution. Related: American Dream homes: What you'll pay in 10 cities court to prevent the evictions of surviving spouses. ![]() "We heard from a lot of surviving spouses getting evicted from their houses lots of folks didn't even know they were taken off the deed and found out when their spouse died," said Jean Constantine-Davis, an attorney with AARP, which sued the Department of Housing and Urban Development, which oversees FHA, in a U.S. When the spouse on the deed dies or moves into a care facility, lenders take possession of the home - often leaving the spouse out in the cold. A 62-year-old, for example, may only be able to get a payout of about $140,000 on a $300,000 home, while a 73-year-old would get $147,000 and an 82-year-old $163,000, according to a National Reverse Mortgage Lenders Association calculator. Cash benefits are based on a borrower's life expectancy. One big issue the new rules don't address, however, is that many couples take out reverse mortgages in the name of the older of the two spouses, in order to maximize payouts. If borrowers run a risk of defaulting, they are required to fund escrow accounts to cover the property taxes and other routine expenses on the home. The new rules now require lenders to make sure borrowers have sufficient enough income from Social Security, pensions and other savings in order to afford both living expenses and these charges. In addition, borrowers still have to keep paying annual property taxes, homeowners insurance and any homeowner's association bills, those recurring expenses that got many homeowners into trouble in the past. At the current interest rate of about 5% for a reverse mortgage, plus the service charge and insurance, a lump sum mortgage balance of $100,000 would increase by about 6.6% a year and the debt would double in 11 years to $200,000.Īll of this counts against the residual value of the home, so there's less left for the estate when the home is finally sold to pay off the mortgage after the borrower either passes away or moves out. In addition, lenders tack on interest charges every month, plus a servicing charge of up to $35 a month and an annual FHA insurance premium of 1.25% of the mortgage balance. There's a 2.5% origination fee on the first $200,000 borrowed for some loans, an upfront mortgage insurance fee of 2%, and a host of other fees that can push the extra costs to $15,000 or more for a $200,000 loan.Ĭalculator: How much will I need for retirement? "You could live to 103 and still get payments," said Peter Bell, CEO of the National Reverse Mortgage Lenders Association (NRMLA). Even if payments - plus interest - to the borrower exceed the value of the home, the payments keep coming. Monthly payments usually work out better anyway, especially for those who live longer. ![]() ![]() So the payout on a $140,000 reverse mortgage would go down to $125,000 or so if the borrower chooses a lump sum. Homeowners who choose the lump sum option could see their payouts reduced by 10% to 18%, depending on underwriting factors. New rules, which launched in October, discourage homeowners from taking lump sum payouts by reducing the payment a borrower receives if they take the entire amount immediately.
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