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Factors Effecting Reverse Mortgage Proceeds

By: Tarun Jaswani

Once the reverse mortgage is established, there are no restrictions on how the funds are used. In addition to the tenure monthly payments, the borrower has the option of moving the entire amount of money into investments, or they can simply take the money and spend it as they wish.

The amount of money available to the consumer is determined by five primary factors:

1) The appraised value of the property, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house.
2) The interest rate, as determined by the U.S. Treasury 1 year T-Bill or the LIBOR index.
3) The age of the senior (The older the senior is, the more money he/she will receive).
4) Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a "Tenure" payment. You receive them for the rest of your life no matter how long you live.
5) The location of the property, and whether the maximum loan amount is subject to the maximum loan limits. These limits change on a county by county basis. There are also efforts to create a national maximum, so you need to check periodically for those numbers. If those numbers go up in your area, you can refinance the reverse mortgage and increase the funds you receive.

All these factors contribute to the Total Annual Lending Cost (TALC) as defined by the US Federal Government Regulation Z, the single rate which includes all the loan costs.

There is also a type of reverse mortgage for homes valued over the maximum Fannie Mae limit. These are called "cash" accounts, and are proprietary loan products. The money received (loan advances) are not taxable and do not directly affect Social Security or Medicare benefits. However, an American Bar Association guide to reverse mortgages explains that if you receive Medicaid, SSI, or other public benefits, loan advances will be counted as "liquid assets" if the money is kept in an account (savings, checking, etc.) past the end of the calendar month in which it is received. The borrower could then lose eligibility for such public programs if his or her total liquid assets (cash, generally) is then greater than those programs allow.

It is important to note that the homeowner must ensure that taxes and insurance are kept current at all times. If either taxes or insurance lapse, it could result in a default on the reverse mortgage.

Among the options of interest bearing instruments, the borrower can keep them with the lender and (These accounts usually pay more than the interest rate of the loan), move the funds to a directed account with a financial specialist (This option is risky unless you direct the investment options of the financial specialist), or withdraw the funds and manage their investment themselves

Article Source: http://www.bluearticles.com


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