How the New Housing And Recovery Act Can Affect Seniors

The Housing and Recovery Act of 2008 is going to affect more than first time home buyers, it will affect seniors too.

When the President signed into law a $300 billion housing bill to help homeowners renegotiate their mortgages, reverse mortgage lenders reignited their marketing programs focusing on seniors, says Frank N. Darras, one of the nation’s leading disability and Long-Term Care insurance lawyers.

Here is what you and your clients need to know:

The increasingly popular reverse mortgage has been shopped by lenders and targeted at homeowners over 62. The intrigue of such mortgages has been that as you age, you can have “your house pay you.” The convincing argument is that reverse mortgages can be used to pay for living expenses, prescription drugs, health care, or to pay off an existing mortgage.

Today’s reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allows folks to tap home equity and not have to make monthly payments. The HECM has been limited to the value reflected in a home’s appraisal, the range and loan limits recently were between $200,160 and $362,790, depending on the location of the home.

That is going to change, according to Darras. The new bill is intended to significantly increase the amount a borrower can get and lenders are dangling a golden carrot with phrases like “Seniors may be able to borrow as much as $625K in home equity to use any way they please!” Keep in mind that the amount of your loan will depend on the home’s value, location, interest rates and the age of the youngest borrower on the note.

“Be very careful,” says Darras. “Rising costs on a fixed income can be a dangerous combination. Don’t let fear and the lure of an easy solution drive your decision. The new legislation is promising to make it less expensive to borrow but it can cost you in the long run, if you are not careful.”

At first glance, it sounds pretty terrific, says Darras. But remember, even though the loan will come due only when you die, sell or move away permanently, it will have to be repaid somehow. Are you setting up a financial disaster that could wipe out your life’s savings, your estate and leave heirs with financial obligations they cannot meet?

Darras recommends that you get straight answers from a financial planner you trust. Most importantly, only deal with lenders and companies you recognize and do your due diligence. If you are not sure about taking out that reverse mortgage, wait until the new law comes into affect in October and more protections are in place to protect you.

These days, the rest of your life can be 30-40 years, so make your decisions carefully, regardless of great marketing, fancy brochures and short-term fixes.