the anton real estate guide, january 16, 2012

REAL ESTATE - JANUARY 19, 201238R

REAL ESTATEGUIDE

ANTONThe

Fixed-Rate Vs. Adjustable-Rate Mortgages; Which is Best for You?By Ronald Scaglia

One major considerationfor most homebuyers isdeciding between a fixed-

rate and an adjustable-rate mort-gage. Simply put, on a fixed-ratemortgage, the interest rate remainsunchanged throughout the term ofthe mortgage, meaning that a bor-rower will have the same monthlypayment throughout the loan (forinterest and principal but exclud-ing property taxes, insurance andother such expenses). Conversely,on an adjustable-rate mortgage,the interest rate can vary withmarket conditions, so the monthlypayment amount will fluctuate ac-cordingly. With that in mind,homebuyers must consider what isbest for them. As with mostthings, it all depends on each indi-

vidual situation.“(The) Long Island market is a

little bit different than the rest ofthe country,” said Michele Dean,senior vice-president of Lendingwith Bethpage Federal CreditUnion. “(For) our clientele, the ma-jority of what we do is fixed rate.”According to Dean, the advan-

tage of a fixed rate loan is stabili-ty. By locking in an interest rate,the borrower knows exactly whatthe payment will be each monthand there are no concerns aboutthe interest rate increasing to alevel that may not be affordable.And with interest rates at or nearhistoric lows, homebuyers whotake a fixed mortgage can securethese low rates for the duration ofthe loan without anxiety that inter-est rates will decline significantly

and they would therefore beforced into a higher interest rate.“We’re at historic lows and if it

goes lower you’re talking an eighth,a quarter – not anything whereyou’re talking 100 basis points or150 basis points,” said Dean.“That’s usually the trigger when itstarts to make sense for somebodyto start to look at a refinance.”The biggest advantage to an ad-

justable-rate mortgage is a lower in-terest rate. The interest rates on ad-justable-rate mortgages are usuallylower than those on a fixed-ratemortgage, so borrowers will incurlower interest charges and have alower monthly interest payment, atleast initially. The risk is that inter-

Adjustable-rate mortgages have lower interest rates, but fixed-ratemortgages offer the security of a constant rate that will not increase.

continued on page 43R

REAL ESTATE - JANUARY 19, 2012 39R


Should Homeowners Consider Reverse Mortgages?W ith the proliferation of television advertise-

ments extolling the benefits of a reversemortgage, some homeowners might consider

a reverse mortgage on their homes. For those who areinterested in reverse mortgages, the New York StateDepartment of Financial Services has the following onreverse mortgages.

What Is a Reverse Mortgage?A reverse mortgage is a home equity loan that permits

you to convert some of the equity in your home into cashwhile you retain ownership. This can be an attractive op-tion for senior citizens who may find themselves “houserich” but “cash poor”, but it is not right for everyone.Please read this fact sheet carefully and consult a lawyerbefore you make any decision.Equity is the difference between the appraised value of

your home and your outstanding mortgage balance. Theequity in your home rises as the size of your mortgageshrinks and/or your property value grows. In a reversemortgage, you are borrowing money against the amountof equity in your home.As the name says, reverse mortgage works like a tradi-

tional mortgage, only in reverse. Instead of a borrowermaking payments to a lender, the lender makes paymentsto the borrower. Unlike conventional home equity loans,most reverse mortgages do not require payment of princi-pal, interest and certain fees as long as you live in yourhome. The money can be used for anything, including liv-ing expenses, home repairs and renovations, medical ex-penses, credit card debt, education, or travel. If you havean existing mortgage, the lender will require that part ofthe reverse mortgage be used to pay off the balance of theexisting mortgage.In a regular mortgage, your monthly payments reduce

your total debt until it is paid off. In a reverse mortgage,your total debt increases as the lender gives you moremoney. Reverse mortgages are rising-debt loans; meaningthat the interest is added to the principal loan balanceeach month. Since the interest is not paid on a current ba-sis, the total amount of interest you owe increases signifi-cantly with time as the interest compounds. With a re-

verse mortgage, you retain title to your home, so you re-main responsible for payment of the taxes, repairs andmaintenance.With a reverse mortgage you can never owe more than

the value of the home at the time the loan is repaid. Re-verse mortgages are “non-recourse” loans, which meansthat if you default on the loan or it cannot otherwise be re-paid, the lender cannot look to your other assets to meetthe outstanding balance on your loan.

Is a Reverse Mortgage Right for You?When considering whether to apply for a reverse mort-

gage, you need to determine two important things: first,are you healthy enough to remain in your home and sec-ond, do you wish to remain in your home? Are alterna-tives, such as selling your home and purchasing a smaller,less expensive home, better for you? Will your children,or other heirs, want to inherit the home? Will you getenough money from the reverse mortgage to enable youto live in your home?

Who Can Get a Reverse Mortgage?• You must own your home.• For some reverse mortgage loans you must be at least

60 years old and for others you must be at least 70 yearsof age and have a low income.• Your home must be your primary residence; you must

live in it for more than half of the year.• For most reverse mortgages, your home must be a sin-

gle-family home, a 1-to-4 unit building, or a federally-ap-proved condominium or planned unit development(PUD).• If you already have a debt or existing mortgage

against your home, you must pay it off or use a cash ad-vance from the reverse mortgage to pay it off. If you don’tpay off the debt beforehand and do not qualify for a largeenough cash advance to pay it off, you can’t get a reversemortgage.• If your home needs physical repairs to qualify for a

reverse mortgage, money from the reverse mortgage mustbe set aside for this purpose.

How Much Can a Reverse Mortgage Be For?The amount of the mortgage will depend on the age of

the borrower, the value of the home and the current inter-est rates. In general, the loan amount will be bigger if thehomeowner is older, value of the house higher and the in-terest rates lower. Usually, the loan should not be morethan 80 percent of what the anticipated value of the prop-erty at loan maturity (or loan-to-value ratio) will be.Use the calculator at www.aarp.org/revmort/ to estimate

how much cash you might get from a reverse mortgage.

How Can a Reverse Mortgage Be Paid?• Immediate cash advance - A lump sum of cash paid to

you on the first day of the loan.• Credit line account - An account that lets you take out

cash whenever you want during the life of the loan untilyou use it up. The amount you get will depend on whetherthe credit line is “flat” or “growing”. With a flat creditline, your remaining credit decreases with each cash ad-vance you take. With a growing credit line, your remain-ing credit grows larger by a yearly rate.• Monthly cash advance - The total amount of cash you

get will depend on whether you get payments for a setnumber of years, or get payments for as long as you livein your home.• A combination of lump sum payment and monthly

payments.• For the rest of your life - If you use the reverse mortgage

to buy an annuity, the amount of cash you get will dependon how long you live no matter where you end up living.

What Does It Cost to Apply for aReverse Mortgage?

Before closing on a loan, the only charge a lender maycollect from a borrower is an application fee. That appli-cation fee must be designated as such and may not be apercentage of the principal amount of the reverse mort-gage or of the amount financed. Any other fees associat-ed with the reverse mortgage may be financed as part ofthe loan.



est rates will rise causing the monthly pay-ment and the interest expense to increaseover the course of the loan.Dean said that Long Island tends to be

less transient than other areas such asFlorida or Las Vegas. Consequentially,homeowners here tend to stay in theirhomes for a longer period of time than inother areas and therefore Bethpage FederalCredit Union has more customers seekingfixed rate mortgages. However, Dean saidthere are some situations where a borrowermight want to consider the risks of an ad-justable rate mortgage in order to secure alower interest rate, particularly those buy-ers who don’t plan on staying in their newhome for an extended period of years.“Say you’re a first time homebuyer and

you’re getting married and you don’t havekids and you’re just looking to own a homeand it might be a three bedroom home,”said Dean. “You figure in 5-10 yearsyou’re maybe going to start a family andyou’ll move up to a bigger home. If you’rethinking that you’re only going to be inyour home for a (short) period of time, anadjustable mortgage may make more sensebecause it’s cheaper. The interest rate issignificantly lower and you’re saving thatmuch in interest for that period of time.”Dean also said that those borrowers with

credit issues might have to take an ad-justable-rate mortgage because of the lowermonthly payment. According to Dean, oneindicator that credit analysts use when de-termining approval for a mortgage is adebt-to-income ratio. The ratio is calculated

using two methods, one referred to as thefront-end ratio and the other as the back-end ratio. To calculate a front-end debt-to-income ratio, the monthly housing paymentincluding taxes is divided by the borrow-er(s)’ monthly gross income while a back-end debt-to-income ratio is determined bydividing the borrower(s)’ entire monthlydebt payments by the gross monthly in-come. Therefore, a lower monthly paymenton an adjustable-rate mortgage will resultin a lower debt-to-equity ratio and could bethe difference between qualifying or notqualifying for a mortgage.“A lot of times it could come down to

qualifying, which is sometimes how peo-ple have gotten into trouble in the past,”said Dean. “They wouldn’t qualify for afixed rate mortgage so they would sayokay, I’ll go with a 3/1 because the inter-est rate is lower and I can meet the guide-lines to qualify for the monthly payment.”Another consideration for borrowers is

their career path and employment stability.Those who have stable careers and antici-pate an increase in their annual incomeshould factor that into consideration, whenconsidering between a fixed-rate and an ad-justable rate mortgage. Some borrowerswho feel that their income will rise in thefuture might consider taking an adjustable-mortgage with the lower payments, whichthey can more easily afford now, thinkingthat if interest rates do increase, their higherincome will offset that. Conversely, thosewho are not sure about their future incomelevels might not be willing to take a chanceon a higher interest rate in the future.

Glossary of Mortgage TermsDo you need help understanding the

vast array of mortgage terminolo-gy? If so, here is a glossary of

words and expressions as provided by theU.S. Department of Housing and UrbanDevelopment.Annual percentage rate (APR) is the

cost of credit expressed as a yearly rate.The APR includes the interest rate, points,broker fees, and certain other credit chargesthat the borrower is required to pay.Conventional loans are mortgage loans

other than those insured or guaranteed by agovernment agency such as the FHA (Fed-eral Housing Administration), the VA(Veterans Administration), or the RuralDevelopment Services (formerly known asFarmers Home Administration, or FmHA).Escrow is the holding of money or doc-

uments by a neutral third party prior toclosing. It can also be an account held bythe lender (or servicer) into which a home-owner pays money for taxes and insurance.The interest rate is the cost of borrow-

ing money expressed as a percentage rate.Interest rates can change because of mar-ket conditions.Loan origination fees are fees charged

by the lender for processing the loan andare often expressed as a percentage of theloan amount.Lock-in refers to a written agreement

guaranteeing a homebuyer a specific inter-est rate on a home loan provided that theloan is closed within a certain period oftime, such as 60 or 90 days. Often theagreement also specifies the number ofpoints to be paid at closing.A mortgage is a document signed by a

borrower when a home loan is made that

gives the lender a right to take possessionof the property if the borrower fails to payoff on the loan.Overages are the difference between

the lowest available price and any higherprice that the homebuyer agrees to pay forthe loan. Loan officers and brokers are of-ten allowed to keep some or all of this dif-ference as extra compensation.Points are fees paid to the lender for the

loan. One point equals one percent of theloan amount. Points are usually paid incash at closing. In some cases, the moneyneeded to pay points can be borrowed, butdoing so will increase the loan amountand the total costs.Private mortgage insurance (PMI) pro-

tects the lender against a loss if a borrowerdefaults on the loan. It is usually required forloans in which the down payment is less than20 percent of the sales price or, in a refinanc-ing, when the amount financed is greaterthan 80 percent of the appraised value.Thrift institution is a general term for

savings banks and savings and loan asso-ciations.Transaction, settlement, or closing

costs may include application fees; titleexamination, abstract of title, title insur-ance, and property survey fees; fees forpreparing deeds, mortgages, and settle-ment documents; attorneys’ fees; record-ing fees; and notary, appraisal, and creditreport fees. Under the Real Estate Settle-ment Procedures Act, the borrower re-ceives a good faith estimate of closingcosts at the time of application or withinthree days of application. The good faithestimate lists each expected cost either asan amount or a range.

Fixed-Rate Vs. Adjustable-Rate Mortgagescontinued from page 38R

Send Us Your Real Estate QuestionsDo you have a real estate question you’d like answered? Send it to

[email protected]. Local attorneys, real estate brokers and other profes-sionals with expert knowledge of real estate issues will be answering questionsfrom readers regarding real estate. Look for questions and answers in an upcomingedition of Anton’s new Real Estate section.


Fees, Costs andPayments at Origination

Origination occurs when the lenderqualifies the borrower to get the loan, ap-praises the home, processes all the neces-sary documents and advances the moneyto the borrower. The fees, costs and pay-ments which a lender may charge whenthe loan is originated are:• Loan origination fee• Document preparation and ‘recording’

the loan• Appraisal or survey of the property• Title and tax search• Attorney’s fees charged to the lender

in connection with the closing of the loan• Credit report• Flood zone search• Inspection fee• Annuity purchase payment• Repairs contracted for, at or before the

loan closing• Tax reporting service (a one time fee)• Mortgage insurance• Real estate taxes and property insur-

ance• Mortgage brokerage services (not to

exceed three points based on the value ofthe property)

Fees, Costs and PaymentsDuring the Life of the LoanWhile the reverse mortgage is outstand-

ing there are a few, limited additional feesand costs that the lender can charge you.The lender can ask that you pay these di-rectly or add them to your loan balance.The only fees, costs and payments whicha lender may charge during the loan are:• The cost of additional mortgage insur-

ance• The cost to maintain the structural in-

tegrity of the home• The cost of any appraisal for the refi-

nancing or extension of the loan• The cost of real estate taxes and prop-

erty insurance• A monthly servicing fee of not more

than $30.00

At the end of the loanAt the end of the loan, there may be ad-

ditional fees, costs or payments. Thelender may charge a termination or matu-rity fee. This fee would be the actual costof arranging for the sale or foreclosure ofthe real property securing the loan. It mayinclude broker’s fees, advertising costs,moving and/or storage costs and legal andother fees incurred by the lender. It maynot be a flat percentage fee.

Shared Appreciation andEquity Participation

In exchange for a lower interest rate thelender and the borrower may agree to“shared appreciation” or “equity partici-pation.” Participation mortgages are sonamed because the lender “participates,”or has the right to a share in any increasein the value of your home as well as theinterest on the loan.A Shared Appreciation Mortgage

(SAM) takes into account the apprecia-tion in value of the house between thetime the loan is signed and the end of theloan term. The lender receives an agreed-to percentage of the appreciated value ofthe loan when the loan is terminated.

When Will theLoan Need to Be Repaid?

• The loan may be for a certain numberof years which is known as a “term” loan,or for an undetermined length of timewhich is known as a “tenure” loan. Atenure loan matures upon an event such aswhen the last surviving borrower dies,sells the home or fails to live in the home

for 12 months in a row.• If you fail to pay your property taxes

or insurance, or let your home fall intodisrepair. Lenders can opt to pay forthese expenses by reducing your loanadvances (if you haven’t used up allyour funds).• You may have to pay the loan back if

the lender determines that a change hasbeen made that could affect the securityof the loan like renting out part or all ofyour home, adding a new owner to the ti-tle, changing your zoning classification ortaking out new debt against your home.

How Is a ReverseMortgage Repaid?

The total amount you will owe at the endof the loan (“loan balance”) will include thetotal amount borrowed (including anyamounts used to pay fees or costs) and allof the interest that money has accrued.If you sell the house, you can pay back

the loan from the money you get from thesale. If the balance of the loan is less thanthe value of the home at the end of theloan period or the money you get from theselling the home at any time, then thelender gets paid the amount owed, andyou or your heirs keep the rest.Any heirs to the home can pay back the

loan.The homeowner or the heirs can take

out a new forward mortgage on the home.

The Lender’s ResponsibilitiesThe lender must give you a statement

prepared by the local or county office forthe aging on available independent coun-seling and information services.The lender must also give you a de-

scription of the relevant features of the re-verse mortgage being offered. This shouldinclude the following information:• The interest rate to be charged and

whether it is fixed, variable or both;• Interest accrues from the time monies

are advanced to you and the interest iscompounded;• All fees, costs and payments that must

be paid by you;• A description of any refinancing fea-

tures that you have discussed;• Any events that could terminate the

reverse mortgage such as death or movingfrom the residence;• A description of any shared apprecia-

tion or equity participation features; and• A toll-free telephone number and the

name of a person who can answer anyquestions, comments or complaints thatyou may have. If there is no toll-free tele-phone number, they must accept collectcalls.The lender can only charge interest on

advances of funds actually made from thereserve account and not on the entire bal-ance in the reserve account and if thelender fails to make any payment requiredunder the loan agreement within fifteen(15) days of the due date, the lender mustforfeit twice the interest that would havebeen earned on the outstanding loan prin-cipal for the entire period during whichpayments were suspended, ceased ormade late.

Your Rights and Responsibilities• IF YOU DO NOT ADHERE TO

CERTAIN REQUIREMENTS, THELENDER MAY HAVE THE RIGHT TOFORECLOSE ON YOUR PROPERTYAND TAKE IT FROM YOU. It is ex-tremely important to have a complete un-derstanding of all aspects of a reversemortgage loan.• Take good care of the house. It should

be in the same condition as it was in at thetime of closing.

Homeowners Consider Reverse Mortgages?continued from page 42R



The Long and Short on Short Sales; Know the DetailsBy Ronald Scaglia

Recently, the term “short sale” has appeared morefrequently in real estate listings which has led tosome confusion among buyers as to what a short

sale actually is.A short sale occurs when the debt on a home is greater than

the present market value of the home, a situation that has aris-en frequently over the past five years as home values have de-clined significantly because of the weak economy. When theborrower decides that the financial obligation of the mortgageis overbearing and decides to stop making the mortgage pay-ments, the borrower and the lender may agree upon a shortsale. In this situation, which usually arises before the borrow-er has missed enough payments so that the financial institu-tion would initiate a foreclosure proceeding, the bank agreesto sell the property in order to recoup as much of the loan aspossible. The lender will not receive enough from the sale tomake up for the amount of the loan, hence the term “shortsale” as the proceeds will be “short” of the loan amount.“It’s beneficial for the homeowner because at the end of

the day the bank is not going to have a deficiency judg-ment against them,” said Susan Higgins, director of salesand an associate broker at Prudential Douglas Elliman ofManhasset. She added that in order for a borrower to qual-ify for a short sale, they must owe more than what thehome is worth and have no means of paying it back. Hig-gins also said a short sale can have no financial benefitwhatsoever to the homeowner.So, while a short sale can benefit a homeowner by

staving off a foreclosure, there is also an opportunity forbuyers who could perhaps capitalize on someone else’smisfortune and purchase an undervalued home. However,before diving in to a short sale, buyers should be fore-warned about the process, as the possibility of being huge-ly disappointed is also present.One factor that buyers should consider when consider-

ing purchasing a home that is being offered as a short saleis time. Because it is called a short sale, some may mis-takenly think such a deal is completed more quickly thana conventional real estate sale. In actuality, short salesgenerally take longer. According to Higgins, a short salecould take between six months and a year to complete,and in some instances could be longer.“It’s short on the proceeds but they do take a long time

because you have to get bank approval,” said Higgins.“Many times a short sale can take about six months, soright there it’s not going to be wise for everybody.”According to Higgins, the logistics of the process is part

of the problem. As she explained, instead of negotiatingwith a homeowner who is right in the home and accessi-ble, negotiations are done with the lender, which couldhave representatives handling the transaction who are lo-cated far away from the location of the property. This cancomplicate the procedure because if officials from the lienholder are indeed far away, they would then need to be incontact with local personnel, such as appraisers and attor-neys, in order to make a determination on the offer.Additionally, Higgins said that some lenders are often

more stringent about the financial credentials of buyers whoare pursuing the purchase of a short sale. She stated that abank that is already losing money on the house would notwant to lose any more money by completing a deal withsomeone who will not be able to get the required funding.“They generally look for someone strong financially,”

said Higgins. “Their preference would be low mortgagecontingency but if it is a mortgage contingency they clear-ly have to be pre-qualified (and) have enough funds be-cause they bank wants to take the home off their hands.They are going to look for the most qualified buyer, notnecessarily the one who is going to offer the most but isfinancially strongest to take over the house.”Another issue that comes up with short sales is actually

completing the deal. John Russo, associate broker and man-ager with Coach Realtors of Manhasset explained that, un-like a conventional sale, the bank or lending institution thatis selling the home could decide to cancel the deal at anytime up until closing if a better offer is received or if there issomething in the original deal that they find unsatisfactory.Russo said that even though a buyer has a contract and alsohas given a down payment, the lender could still return thatdown payment and turn away from the deal, leaving thebuyer disappointed and once again searching for a home.

“The problem is, even though in the contract period on ashort sale, you can be bumped if somebody comes in with ahigher offering,” said Russo. “The bank could go to themeven though you’re in contract. Until it closes, you’re incontract but you don’t truly have a first right to that house.”A third issue that the real estate professional explained

could cause complications is the current mortgagees livingin the home. While they may have sought out a short sale,they will not reap any of the proceeds from it, and there-fore do not have significant incentive for maintaining thehouse properly. They also have no incentive to vacate theproperty once the deal is completed.“These houses tend to need a little work because what’s

happening is the people are not maintaining it any more,”said Ed Termini, a real estate agent with Century 21 Cata-pano Homes in Bethpage. “They’re walking away from itanyway. They’re not making a dime on the house.”“It’s very difficult to get them out because the law is al-

ways in benefit of the tenant,” said Higgins. “Nobodywants to throw someone out on the street.”Higgins also advises that buyers be cautious about homes

being sold in an area where there is a cluster of short sales.She said that economic circumstances could cause financialdifficulty and cause the need for short sales. However, ifthere is a group of short sales clustered in a narrow area suchas on one block, buyers should be cautious as there may beanother underlying reason causing the home values to falland create this proliferation of short sales in that one area.However, if buyers are patient enough to wait through the

entire short sale process and if they are willing to accept thepotential for disappointment, the real estate professionalsall concurred that short sales may offer the potential to pur-chase a home at less than it should be sold for. Higgins ex-plained that buyers know an owner is in trouble because thehouse is being offered as a short sale and therefore bid lessaggressively. This situation leads to a bargain.Higgins said that certain situations are best for those in-

terested in a short sale. She stated that those who have nourgency to move, such as those currently leasing are pos-sible candidates.“It’s really a specialty buyer that’s in a position to buy a

short sale,” said Higgins. “If you’re in a position where youdon’t need to close right away, if you’re a month to monthtenant, or you have your cash proceedings from whatever andyou’re living somewhere else, there definitely is an advantagebecause you generally get a home that’s under market value.If it’s in a good neighborhood where let’s say the comps are$600,000 - $700,000 and you have a chance to buy it under5, then that’s a very good investment, but you have to be pre-pared to wait a very long time before you close.”


2,000 ---

1,600 ---

1,200 ---

800 ---

400 ---

0 --- I I I I I I I I I I I I I11/2009 1/2010 3/2010 5/2010 7/2010 9/2010 11/2010 1/2011 3/2011 5/2011 7/2011 9/2011 11/2011

Current Available Nassau Inventory - 8,827Current Median Nassau List Price - $435,000

Sold Property Counts For NassauDivided By Property Type- 3 Year Range

NOV 2009 NOV 2010 NOV 2011DATE RANGE

Information displayed in the data table is compiled by theMultiple Listing Service of Long Island, Inc. and represents a combined total

of all residential, condo and co-op sales for the selected time frame.

These graphs represent data compiled by the Multiple ListingService of Long Island, Inc. and provide a year-to-year

comparision for a specific month, over a three year period.

RESIDENTIALSINGLE / MULTI-FAMILY

CONDO CO-OP

876

552 553

1000 ---

800 ---

600 ---

400 ---

200 ---

0 ---

3437 38

60 ---

40 ---

30 ---

20 ---

0 ---

63

55 47

80 ---

60 ---

40 ---

20 ---

0 ---

Sold Property Counts For Nassau County(Last 24 Months - All Property Types)

Information displayed in the data table is compiled by the Multiple Listing Service of Long Island, Inc.and represents a combined total of all residential, condo and co-op sales for the selected time frame.

ALL PROPERTY TYPES

MONTHCURRENTYEAR

PRIORYEAR

%CHANGE

May 2011 654 719 -9.0

April 2011 602 750 -19.7

Mar. 2011 650 698 -6.9

Feb. 2011 630 566 11.3

Jan 2011 610 695 -12.2

Dec. 2010 780 908 -14.1

MONTHCURRENTYEAR

PRIORYEAR

%CHANGE

Nov. 2011 638 644 -0.9

Oct. 2011 703 632 11.2

Sept. 2011 869 793 9.6

Aug. 2011 941 819 14.9

July 2011 862 702 22.8

June 2011 894 1,507 -40.7

Homeowners Consider Reverse Mortgages?

• If there is no escrow account estab-lished by the lender, you must pay the realestate taxes and insurance premiums onthe property directly.• You and the lender may agree to set

up a reserve account that may be used byeither party to keep the house in goodcondition, or to pay taxes, insurance pre-miums or personal expenses.• You may choose a property insurer

but the lender must approve that choice. Ifyou don’t choose an insurer on time or theinsurer is not acceptable to the lender,they may choose the insurer.

What are the Potential Risks?• The interest on a reverse mortgage

loan is compounded. This means that youare paying interest on both the principaland the interest which has already accruedeach month. Compounded interest causesthe outstanding amount to grow at an in-creasingly fast rate. This means that alarge part of the equity in your home willbe used to pay the interest on the amountthat the lender pays to you.• Don’t borrow more than you need.

Figure out exactly how much you need tosupplement your income in advance sothat you don’t end up paying interest onmoney that you didn’t need.

What Are the Potential Benefits?Reverse mortgages can be of benefit to

those senior citizens who are reasonablyhealthy, want to remain in their homesand find that they are “house-rich” but“cash-poor”.• There is no financial penalty if you

choose to prepay the loan.• You will not have to make any pay-

ments on the loan for as long as you live

in your home.• You will have a guaranteed monthly

income, or a guaranteed credit line.• Borrowers can pay off a previous

home debt with an advance from their re-verse mortgage. You may not have to payoff other debt against your home if a priorlender agrees to be repaid after the reversemortgage is repaid. Generally only stateor local government lending agencies arewilling to consider “subordinating” theirloans in this way.• The debt is limited to the value of

your home.Remember:

Do your homework. You should be aswell informed as possible, assess the po-tential rates on a loan, and decide if thebenefits outweigh the risks. For a completeguide to understanding reverse mortgagesvisit Fannie Mae at www.fanniemae.comor call 1-800-7FANNIE (1-800-732-6643)to order a copy in the mail.After closing on a reverse mortgage,

you have three business days to reconsid-er and cancel the agreement. Businessdays include Saturdays, but not Sundaysor legal public holidays. If you decide tocancel, you must do it in writing, using aform provided by the lender or by letter,fax, or telegram that must be hand deliv-ered, mailed, faxed, or sent before mid-night of the third business day. You can-not cancel by telephone or in person.Have an attorney, an accountant, a Hous-

ing and Urban Development certifiedcounselor, or other counseling service re-view the reverse mortgage with you beforeyou make any decisions or sign anything.Written complaints about mortgage

lenders or brokers can be submitted to theDepartment of Financial Services online atwww.dfs.ny.gov/consumer/fileacomplaint.htm

continued from page 46R


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the anton real estate guide, january 16, 2012

Documents

fixed rate loan

constant rate

terest rate

fixed mortgage

adjustablerate mortgage

considera reverse mortgage

term ofthe mortgage

home equity loan