There is currently legislation before Congress for lifting cap on amount of federal guaranteed reverse mortgage.  The bill has passed the House and is awaiting action in the Senate.  With the Democratic majority coming into power in 2007 there is a strong likelihood that this legislation will be passed.  For most parts of America this will have a huge impact on reverse mortgages by increasing the amount which you can borrow against your home.

This legislation would make the maximum value in the HECM (Home Equity Conversion Mortgage) program equal to the HUD conventional loan limit of $417,000.  Right now these limits are set by zip code based on housing performance and forecasted values in your zip code.  This is why you have to input your zip code in the reverse mortgage calculator right now. 

If I input my address of West Chester, Ohio, into the reverse mortgage calculator I have a maximum lending amount of $228,000, even if my home is worth $420,000.  The calculator will give numbers but it does not show the “rules” it calculates by.  If this Zip Code Rule is replaced with the HUD Conventional Loan Limit Rule, my maximum lending amount is increased to $417,000 (assuming my house is worth at least that amount). That is frequently the difference between whether or not a reverse mortgage makes sense to do.  In this example, if my loan amount is 50% of the maximum lending amount I can now borrow $208,500 instead of being limited to $114,000.  

This legislation is very important to seniors and will make the difference on the reverse mortgage program being accessible to all Americans.  I encourage you to contact your U.S. Senator to encourage the Senate to pass this bill.  Your Senator may be reached through the following link:

http://www.senate.gov/general/contact_information/senators_cfm.cfm

Everyone who is looking into a reverse mortgage has a common starting place – what lifestyle do I want to live as I age? 

It seems that this is the obvious place but I am amazed when I look at most web sites or published comments on reverse mortgages.  They want to talk about product features, how reverse mortgages work, and then offer advice such as “let your home equity work for you”.  It’s like trying to decide whether to fly or drive on vacation and being given a booklet on how your car engine works to help you decide. Similarly, letting my home equity work for me does not tell me anything - kind of like seeking advice on whether to fly or drive and being told “we love to fly and it shows.”  If this sounds absurd and maddening, that’s how I see most of what passes for information on reverse mortgages.

It is important to know that the reverse mortgage program started as a loophole in the Medicaid program - as a way to get cash from an asset (home equity) that did not disqualify them from this government program.  Health care planning and considerations have ever since been the proper context in which to view the reverse mortgage program.  Independent living at home is the near-universal goal of seniors.  Assisted living is often the next step, but still allows seniors to age in place in their home.  Insuring oneself (and spouse, if applicable) with long term care insurance is becoming more and more important as the government leaves such matters with private-sector insurance and decisions.  On the other end of the scale, the one lifestyle that is the near-universal aversion of seniors is to be indigent and have to rely on government care, or to become the ward of a child – or grandchild.

These lifestyle choices need to be seriously and thoroughly considered by seniors, and by those planning for their senior years.  It takes a lot of honest reflection – about how good of health you are in, whether known health issues will limit your longevity, and how much care you will need as you age.  Family history and genetics need to be considered so that you are ready for health issues that have not yet surfaced but yet lurk in your background.  Once these are considered your vision of lifestyle you want to live will emerge. 

Then, and only then, should the discussion and personal considerations move into financial matters.  Again, fundamentals are the most important … how much do you own in assets, and how much cash do you receive each month as income.  Social Security is an important source of monthly income for seniors, but the fixed income nature of Social Security can impair your chosen lifestyle.  Assets can also be turned into monthly income.  Stocks and bonds and investments can be sold off slowly over time for monthly living expenses, or quickly sold for emergencies. 

The toughest financial consideration to determine though is whether or not these assets will last long enough.  The only way to know that is for us to know the last month of our lives, which is impossible.  We deal with this uncertainty in our life by planning and using financial instruments (assets, debt, insurance) to fill the holes caused by a lack of knowing.

Reflect about your lifestyle.  Assess your own health and finances. Those are the preliminaries to a reverse mortgage.  Don’t put the cart before the horse!