ElderLaw News-The Estate Planning & Elder Law Firm, P.C. — MD, VA, DC
ElderLaw News
ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President., William S. Fralin, Esq., President.

New Changes In Reverse Mortgage Regulations Provide Opportunity For The Elderly

Recent regulatory changes relating to reverse mortgages may make utilizing a reverse mortgage more understandable and applicable to retirees.

For many years, reverse mortgages were viewed as a product of last resort. Professionals from a variety of fields, from personal finance to elder law, viewed a reverse mortgage as confusing, unfair, and potentially even predatory to seniors. Recent changes may give reverse mortgages a dramatically better name within the retirement community.

Traditionally, there were two primary reserve mortgage options: the traditional reverse mortgage, officially known as a Home Equity Conversion Mortgage (“HECM”), and the HECM Saver, which had a lower payout of equity but fewer upfront fees. As of September 30, 2013, both of these mortgage vehicles became outdated. Now, all new mortgages will have to conform to regulations which will provide better clarity and flexibility to retirees. Any existing reverse mortgage will remain in effect.

New reverse mortgages will utilize a contract structure similar to a purchase money mortgage. Thus, seniors will face a much tighter standard principal limit factor. The principal limit factor is the amount of equity one can withdraw from a residence. Whereas in the past one could remove the entire equity in a home, now one can only remove seventy percent of existing equity. For those in dire financial conditions, this means the reverse mortgage will no longer be an emergency safe haven.

However, new reverse mortgages will have an important new option: flexibility of payment. Specifically, one can take a partial withdrawal of equity one year, for example when the stock market is high and capital gains would be detrimental, without being required to take additional payments in the future unless desired. In short, the new reverse mortgage operates similarly to a home equity line of credit, often referred to as a “HELOC,” as opposed to a traditional reverse mortgage. Thus, many financial planning opportunities may be available for those who would not traditionally consider a reverse mortgage an appropriate option.

One must analyze the upfront costs of a reverse mortgage when considering the impact that a reverse mortgage may have on one’s financial health. Usually, a reverse mortgage includes an upfront closing cost equal to roughly four percent of the mortgage. If this money were saved, it could grow in the stock market. Thus, there are other costs associated with this upfront cost – specifically, the lost growth that closing cost funds could have obtained over time. However, some people highly benefit from the cash flow benefits of a reverse mortgage. Those who are “real estate wealthy” but lack liquidity may be a good fit for a reverse mortgage. One must still be 62 years of age to obtain a reverse mortgage.


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The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter. The Estate Planning & Elder Law Firm, P.C. thanks the law firm of Hook Law Center for their input to this newsletter.

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