Reverse Mortgage Counseling
The decision to take out a reverse mortgage is not one that should be taken lightly. There are many nuanced factors to take into account, and it is important to understand the full implications for the homeowner, surviving spouse in the case of married homeowners, and any heirs. It is important for the peace of mind and financial security of all involved that everyone fully understands the transaction and what will take place immediately and in the future.
To aid in this decision making, and to ensure that the homeowners are able to make an informed decision about whether or not to take out a reverse mortgage, The US Department of Housing and Urban Development (HUD), who insures and regulates the Home Equity Conversion Mortgage (HECM) program, requires that all potential applicants meet with an approved HECM counselor before moving forward with an application.
Reverse mortgage counselors help you evaluate whether tapping into your home equity to allow you to remain in your home as you age is the best move for you to make at this time.
How are Reverse Mortgage Counselors paid?
These professionals receive a fee for the counseling service, either paid up front by the homeowner considering the reverse mortgage, or in some cases the fee can be paid out of the proceeds of the loan at closing. In situations of extreme financial hardship this fee may even be waived. Talk to one or more counseling agencies to learn about your options.
Because these counselors are compensated simply for their time, there is no incentive for them to try to persuade a homeowner to take out a reverse mortgage if it is not in their best interest. He or she may make other recommendations such as applying for a conventional home equity loan, tapping into savings or other assets, or looking into assisted living housing options. For more information read our section on Roles and Responsibilities of a Reverse Mortgage Counselor
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What will the counselor discuss?
The counseling session should include a thorough review of the homeowner’s finances. A look at current expenses, any available assets such as savings or retirement accounts, any income such as that from social security or a pension, and the estimated equity available in the home will provide a good idea of what type of impact the funds from a reverse mortgage would have on the current financial picture. In some cases the amount received monthly or in a lump sum would not be sufficient to cover the gap between monthly income and expenses, while in others it can mean the difference between comfortably affording to stay at home and being forced to move when not ready to do so.
In addition to the financial aspects of the decision the counselor will discuss aspects of whether aging at home is truly the best option in the particular scenario.
- Is the home safe? Is the neighborhood safe?
- Is the home accessible by the homeowners at their current level of health?
- Would it be so were they to need assistance walking or a wheelchair?
- Could the homeowners care for themselves if they were no longer able to drive a car? For example, is there adequate public transportation or essential services within a short walk?
- Are family and friends who can provide help as needed close by, or would it make more sense to move closer to potential care givers?
All of these issues come into play when determining what makes the most sense. It is important to look at long term scenarios, because what works well today might not a few years down the road.
The HECM counselor will also review the continuing obligations of the homeowner. Though there will be no more monthly mortgage payments to make as long as at least one borrower remains in the home, there will still be expenses associated with owning the property. It will remain the responsibility of the homeowner to pay property taxes and to keep continuous insurance coverage on the property. Accounting for these ongoing expenses should be included in the financial planning.
There are a few steps that borrowers can take to make the counseling process more effective.
- Compile a list of questions while going through information on reverse mortgage programs and bring them to the session.
- Take notes during the session to make it easier to recall the specifics later on.
- Give adequate time to the decision making process. Though some cases are time sensitive, in most scenarios a delay of a few days to think things over will not have any adverse consequences.
It may be also helpful to have an adult child attend the counseling session when an aging parent is considering a reverse mortgage. They may have additional questions and concerns, and it can be helpful to have a few people hear the information to be sure it is thoroughly understood by everyone involved.