Erin and Judy's Own Your Future story
Judy is 77 and lives with her daughter Erin in a condominium in Minnesota. Judy began planning for her long-term care after Erin heard a friend talk about reverse mortgages. After some research, the two of them decided that a reverse mortgage would be a good financing option for Judy at her current stage in life.
Erin acted as an advocate for Judy, explaining how a reverse mortgage would work and what options she had, guiding her through the process. My mom was cash poor, equity rich, said Erin. With a reverse mortgage, Judy could receive cash against the equity of her home without having to sell it. The reverse mortgage paid off what Judy still owed on her home and allocated about 52 percent of what was left into a line of credit.
The nice thing about the line of credit is that you earn compounding interest, she said. Erin and Judy chose a slightly higher interest rate for the loan, which means Judy is paying more for the loan now, but she is also accruing more interest.
Because the reverse mortgage paid off what Judy owed on her home, she is now able to use the money she typically set aside each month to pay her mortgage payment for other expenses. Judy plans to let the line of credit sit and accrue interest until she is ready to access the money should she need it.
While a reverse mortgage was the right option for Judy, Erin cautions that the option is not for everyone. It can backfire on you, she said. Things can go wrong if you are not persistent.
Things that can go wrong and some advice from Erin:
- Foreclosures in the area can lower the appraised value of your home. Find a mortgage consultant that will ask a lot of questions and find ways to get the appraiser to raise the value.
- A homeowner only gets one chance to dispute an appraisal. Make sure that every issue and every possible angle is covered in your 1 dispute.
- Whatever the appraised value of the house is, the mortgage underwriters can lower the value they will underwrite. If that happens, the mortgage consultant can simply withdraw the application and submit to another underwriter.
- The fees and closing costs quoted can be different on the actual paperwork for the mortgage application. Get an itemized list of all fees and closing costs quoted in writing from the mortgage company (email works well). Compare the quote to the application when signing the application.
- Make sure the mortgage is closed within 90 days of the appraisal date. After 90 days the appraisal expires and the process starts over, including paying for a new appraisal.
- The homeowner must continue to pay property taxes and keep the homeowners insurance current. If the home also has an association fee, that too must be paid. Every year the homeowner will have to submit proof of payment to the mortgage company for these expenses. If the homeowner does not submit proof or does not -or cannot- pay, the mortgage company can foreclose.
Erin also advises that those looking to use a reverse mortgage go through the process with a family member or friend who has the time and energy to advocate on their behalf.
With Erin's help, Judy is now able to age in her own home with peace of mind. This option allows my mother to live with a little less worry and a little more money, Erin said.