The laws and regulations for reverse mortgages in Massachusetts are a bit different from other states. It is important to understand the rules regarding counseling, fees, borrower rights, and key issues when looking for a new reverse mortgage loan.
In Massachusetts, counseling by an approved agency is mandatory for all borrowers interested in a reverse mortgage. Whereas most other states allow for phone consultations, Massachusetts requires that borrowers participate in an in-person counseling session. During this meeting, we recommend the following tips:
- Have family members or trusted advisors with you during the session.
- Ask the reverse mortgage counselor about available resources, services, and benefits you can receive from government or non-profit programs.
- Be sure to ask the counselor about any and all alternative loan programs that might better fit your financial situation.
- If you are confused or are having problems understanding the loan documents, ask the counselor to interpret them for you or ask for them to clarify what they mean.
- At the end of the session, make sure you and any co-borrower receives the proper certificate and documentation from the counselor. This certificate indicates that you are eligible to proceed forward with the reverse mortgage loan process.
The reverse mortgage has a number of fees that must be considered and reviewed carefully with a family member or trusted financial advisor. Typically, a reverse mortgage has up-front fees and costs which may amount to thousands of dollars and increase the amount owed on the loan. It is important to understand the total costs of the loan before you decide to proceed with the reverse mortgage. Be sure to ask questions and insist on answers.
Typical fees include:
- Origination fees
- Closing costs
- Service fees
- Mortgage insurance premium
As a borrower, you are entitled to certain rights to protect you and your financial interests. Massachusetts law requires borrowers to take a 7-day “cooling off period” after signing a loan commitment letter. This period is designed to protect borrowers from rushing into a reverse mortgage, but also to ensure that they have time available to them to decide whether the loan is right for them. Both federal and state laws also allow you the right to revoke or recind your reverse mortgage loan within 3 days from the closing date.
Other Important Issues
The reverse mortgage can be a viable option for your unique financial situation, but it is very important to be aware of potential risks and issues that may arise during the process. Here is a list of things to be cautious of when searching for a reverse mortgage:
- Sales tactics involving the required and/or suggested purchase of annuities, other investments, long term care insurance or other types of insurance policies that use proceeds from your loan
- Sales tactics involving contractors asking for loan proceeds to pay for home repairs or alterations
- Transferring titles for the property out of you or your spouse’s name to qualify for the reverse mortgage. There are legal consequences to title transfers so be aware of this fact and if you have any questions, do not hesitate to reach out to a trusted advisor or family member to help you.
- Be cautious of advice to have the proceeds from the loan payable to third parties that are not named on the reverse mortgage. Make sure the proceeds are made payable to you and/or your spouse.
- Estate planning services who refer you to a lender for a fee or percentage of your loan. The Division of Banks and the Department of Housing and Urban Development (HUD) offer free information on lenders.
- Discuss your payment options and planning schedule with a trusted advisor or family member. You do not have to be pressured into withdrawing all of your available equity into a single lump payment upfront. It is essential to understand that the conditions for reverse mortgages include a number of factors down the road, including real estate taxes, property insurance, and property maintenance.
The reverse mortgage is an excellent financial tool that can supply borrowers with flexible and dynamic payment option. We want you to educate yourself so you can make the best decision that fits your unique situation.
In summary, here is a list of advice from us and the Massachusetts Division of Banks:
- Obtain independent legal and financial advice before signing your loan documents. Also, retain your own legal representation throughout the process until the closing of your loan.
- Discuss the advantages and pitfalls of the reverse mortgage with trusted members of your family.
- Understand the obligations for your loan. This includes your responsibility:
- To pay taxes
- Maintain your property that meets the standards of HUD
- Failing to fulfill these obligations may result in a default or potentially lead to foreclosure
- Understand that your loan cannot have prepayment penalties or restrictions attached to it
- Loans must be able to be prepaid in full or in part at anytime with no penalty
- Over time, the loan balance may increase and affect the built-up equity in your home. This is very important to understand and be cautious of. Be sure to carefully plan your payoff options with a trusted advisor to ensure you are leaving enough funds for unexpected expenses such as home repair, health care, or any other situation down the road.