The following is a guest post from Julius who writes for NewRetirement.com.
The Good News and Bad News on Reverse Mortgage Loan Amounts
Reducing the Maximum Reverse Mortgage Loan Amounts
Effective Oct. 1, 2009, the Federal Housing Administration reduced the maximum loan amounts seniors could receive from a Reverse Mortgage. The reduction means a 10 percent cutback on the loan amount for all new FHA Reverse Mortgage loan applications.
While this won’t impact borrowers with applications taken prior to October first, it is estimated that one in five new Reverse Mortgage applicants will now be unable to qualify for the loan.
The reduction will strengthen the Reverse Mortgage program and help the FHA recover from an estimated $798 million budgetary shortfall for the program in the coming fiscal year. The shortfall resulted at least in part from the FHA mortgage insurance program having to cover the difference between final loan amounts and lower than expected home sales prices used to pay off Reverse Mortgages come due.
Is there good news? If you haven’t yet applied for your Reverse Mortgage, you will indeed now have access to less cash than you would have a month ago. However, loan amounts in 2009 are still generally higher than they were in 2008.
Will there be more changes? The FHA can change the benefit level at any time – up or down. While impossible to predict, a further decline in housing prices might necessitate further benefits reductions.
Stretching Your Reverse Mortgage for the Rest of Your Life
Many seniors secure a Reverse Mortgage to enable them to “age in place.” Aging in place means that you wish to remain in your home as long as possible – making necessary modifications or hiring home health care to keep you safe and comfortable.
Whether you are 62 or 90, it is important to consider your plan for aging and how you will fund long term care if it is required. If you are securing a Reverse Mortgage at a relatively young age, you should make sure that you will be able to fund the expenses nearer the end of your life.
The most significant cost of aging in place is typically a home health aide. The average national cost of services was $19 per hour in 2008. A person who needs a few hours of help from a home health aide in the morning and at night could easily spend $76 a day – which is around $2,280 a month.
In addition to considering home health care costs, you will want to assess whether or not your home is appropriate for aging and what modifications – ramps, a bathroom on the main floor or grab bars for example – would be necessary.
Should You Consult Your Family About a Reverse Mortgage and Other Retirement Issues?
It is not usually required that you discuss your decision to secure a Reverse Mortgage with family. However, it can be a very good idea to share your overall retirement plan – including Reverse Mortgage options — with your children.
There is a strong likelihood that your retirement plans will impact your children’s lives. It is estimated that at least 40 percent of today’s baby boomers are helping to take care of one of their parents – either financially, personally or both. It is therefore important to discuss your financial decisions with anyone who might be eventually be impacted by your plans.
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Reverse mortgages scare me.
The best advice I gleaned from this article is to talk to your family about your plans. If they are able to step forward and help, this is a much better option than a reverse mortgage. As a veteran of the real estate industry, I can say that I have never heard of any positive outcomes when one takes out a reverse mortgage.