“You’re facing your own mortality,” Watkins says. In addition, reverse mortgages affect where the homeowners live, how medical bills will be paid and what the future holds inasmuch as financial security is concerned. Most adults nurture the idea of leaving something to their children and believe their home is sacrosanct. Parting with even a little of its value can be traumatic.

Watkins sees reverse mortgages as similar to secured credit cards. “It looks a lot like free money, and a lot of people miss the fine print,” Watkins says. “Many customers only pay attention to two or three variables in a loan.”

Depending on where you live, Basich says, the proceeds from a reverse loan could prove a barrier to qualifying for Medicaid, which counts loan proceeds as an asset.

Although each state differs in the fine print, untapped equity in the home is not considered an asset in determining Medicaid eligibility, as long as it’s owner-occupied. Recent federal legislation placed the home-exemption ceiling at $500,000.

For a homeowner with property worth more, there’s definitely an argument for obtaining a reverse mortgage and then spending down the cash. But that cash is also subject to Medicaid’s new time limitations on asset reduction. Talk to an eligibility specialist early in the process to see where you stand.

Additionally, Basich says, the terms of many reverse mortgages knock homeowners out of their homes after a period of absence, which varies from lender to lender. He says some reverse mortgages require the full loan balance plus accrued interest be repaid when the house is vacated by the owner for a specified period — like a prolonged, but temporary, nursing-home visit.

“Can you imagine if you have nowhere to go to?” Basich says. “What incentive do you have to get better?”

Here’s how that would work: You own a home valued at $300,000. You find yourself in need of a large amount of cash for major home repairs and want a lump sum in the bank for future emergencies. You borrow a combination of cash and upfront costs (rolled into the loan) valued at $100,000 at 6%. Exclusive of taxes and insurance, you’d be repaying a little less than $600 per month on a 30-year loan. You wouldn’t need mortgage insurance because you’d still have plenty of unencumbered equity.
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The rub here is the monthly payments. However, Basich contends that the fees for this type of loan are lower, and your remaining equity isn’t subject to interest or other costs associated with a reverse mortgage.

True, in a conventional mortgage, the money must be paid back starting right after closing, while reverse mortgages don’t fall due until the home is vacated. But, Basich argues, because the payments on a conventional mortgage are stretched out over a longer period, they’re lower and more manageable.

In the case of a reverse mortgage, younger borrowers can’t cash out as much equity as older borrowers. To qualify for a reverse mortgage, you must be at least 62 years old. Because banks are repaid when the house is sold, it’s quite possible a lender might have to carry the note for 20 to 25 years or more. For that reason, a 79-year-old is a much more attractive loan candidate from the bank’s perspective.

As for the borrower, whether he lives six months or 30 years after the loan is closed, he still pays stiff upfront fees. Of course, statistically speaking, older borrowers are less likely to accumulate as much interest as younger ones.

Origination occurs when the lender qualifies the borrower to get the loan, appraises the home, processes all the necessary documents and advances the money to the borrower. The fees, costs and payments which a lender may charge when the 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 insurance
• Mortgage brokerage services (not to exceed three points based on the value of the property)

Fees, Costs and Payments During the Life of the Loan

While the reverse mortgage is outstanding there are a few, limited additional fees and costs that the lender can charge you. The lender can ask that you pay these directly or add them to your loan balance. The only fees, costs and payments which a lender may charge during the loan are:

• The cost of additional mortgage insurance
• The cost to maintain the structural integrity of the home
• The cost of any appraisal for the refinancing or extension of the loan
• The cost of real estate taxes and property insurance
• A monthly servicing fee of not more than $30.00

In exchange for a lower interest rate the lender and the borrower may agree to “shared appreciation” or “equity participation.” Participation mortgages are so named because the lender “participates,” or has the right to a share in any increase in the value of your home as well as the interest on the loan.

A Shared Appreciation Mortgage (SAM) takes into account the appreciation in value of the house between the time the loan is signed and the end of the loan term. The lender receives an agreed-to percentage of the appreciated value of the loan when the loan is terminated.

You may have to pay the loan back if the lender determines that a change has been made that could affect the security of the loan like renting out part or all of your home, adding a new owner to the title, changing your zoning classification or taking out new debt against your home.

If you sell the house, you can pay back the loan from the money you get from the sale. If the balance of the loan is less than the value of the home at the end of the loan period or the money you get from the selling the home at any time, then the lender gets paid the amount owed, and you 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 must also give you a description of the relevant features of the reverse mortgage being offered. This should include 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 is compounded;
• All fees, costs and payments that must be paid by you;
• A description of any refinancing features that you have discussed;
• Any events that could terminate the reverse mortgage such as death or moving from the residence;
• A description of any shared appreciation or equity participation features; and
• A toll-free telephone number and the name of a person who can answer any questions, comments or complaints that you may have. If there is no toll-free telephone number, they must accept collect calls.

Equity is the difference between the appraised value of your home and your outstanding mortgage balance. The equity in your home rises as the size of your mortgage shrinks and/or your property value grows. In a reverse mortgage, you are borrowing money against the amount of equity in your home.

Most reverse mortgages do not require payment of principal, interest and certain fees as long as you live in your home. The money can be used for anything, including living expenses, home repairs and renovations, medical expenses, credit card debt, education, or travel. If you have an existing mortgage, the lender will require that part of the reverse mortgage be used to pay off the balance of the existing 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 more money. Reverse mortgages are rising-debt loans; meaning that the interest is added to the principal loan balance each month. Since the interest is not paid on a current basis, the total amount of interest you owe increases significantly with time as the interest compounds. With a reverse mortgage, you retain title to your home, so you remain responsible for payment of the taxes, repairs and maintenance.

With a reverse mortgage you can never owe more than the value of the home at the time the loan is repaid. Reverse mortgages are “non-recourse” loans, which means that if you default on the loan or it cannot otherwise be repaid, the lender cannot look to your other assets to meet the outstanding balance on your loan.

Reverse mortgages can be very expensive compared with other kinds of loans, and the amount owed grows every month. Because of these high costs, someone borrowing only a small amount for a short time is probably better served with another kind of loan, like a home equity line of credit. If borrowers need a large amount, they should consider alternatives to a reverse mortgage.

Loans make sense only for borrowers who expect to live in their home for a number of years. Some financial advisers say anyone who may move in less than seven years should not take out a reverse mortgage.

Repayment of a reverse mortgage is deferred until the homeowner moves or dies. The amount owed increases over time. If a borrower lives in the home for many years after getting a reverse mortgage, the debt can grow to equal the entire value of the house, meaning heirs will not receive anything.

It is almost always a bad idea to use a reverse mortgage to pay for a vacation or to buy a risky investment, like stocks or deferred annuities.

Cash from a reverse mortgage can be paid out in several ways, including a lump sum, a monthly payment, a line of credit or a combination of those. If you do not need money right away, it is usually a bad idea to take all the money upfront, since it starts accumulating interest charges immediately.

Because reverse mortgages are complex, homeowners should seek advice from an independent adviser before speaking with a sales agent or mortgage broker.

Market-share of new development sales made a 23% increase this quarter, up from 17% last quarter and 19% from one year ago. A handful of new developments have entered the market this year and activity has been strong.Midtown West new developments pricing made a significant increase from both Second Quarter 2010 and First Quarter 2011. At $1.4 million, median priceswent higher by 81% and 16%, respectively, an impressive fete from last year and previous quarter.

Average price per square foot went higher by 9% compared to last year with no change from last quarter due to closings in more centrally located properties such as Sheffield 57, Setai Fifth Avenue and The Centurion which offers larger residences than properties further west.

Midtown West Resale co-ops performed higher with 8% in median price and 13% in average price per square foot from last quarter. Two-bedroom co-op median price rose to 38% from last quarter.

New development sales on the West Side are also higher by 6% in median price. Two-bedroom median price rose to 31% from last quarter due to sales at The Rushmore, Linden 78 and The Apthorp.Resale co-op pricing on the West Side median price increased by 7% while average price per square foot increased 10% compared to 2010. Co-op median price increases were felt in all bedroom categories over last year.Midtown East new development median price went higher by 3% but average price per square foot fell by 5%. Two-bedroom market-share made a slightly increase bringing median price up from last year. Compare to last quarter, median price dropped 6% while average price per square foot declined 10% as more conversion product sold this quarter.

East Side Townhouse median price performed higher 9% this year amounting to $6.43 million. Only two East Side salesbelow $5 million were made this quarter. Compared to last quarter, East Side median price recorded a decline of 20% due to several transactions over $12 million. Downtown median price went higher by 26% and 15%, respectively, versus last year and last quarter with roughly one-half of the sales over $7 million, primarily in the Village and Tribeca. Westside prices were up impressivelyfor both time periods.Manhattan’s luxury market is defined as the highest priced 10% of all co-op and condo sales. Compared to last year, luxury median price went higher to $4 million as average price per square foot scored 4% increase to $1,864. However, luxury median price fell 5% while average price per square foot fell 3%, in part due to one $48 million transaction last quarter.

Two-bedroom co-op median price rose by 38% from last quarter. In comparison to second Quarter of 2010, median price fell by 2% but average price per square foot were higher by 9%. Resale of condos went higher by 11% in median price from 2010. Resale condos went higher by 12% in median price to $1.2 million with an average price per square foot from 2010, at $1,208 price.Resale of co-op sales in Midtown East went slightly higher from last year in median price and average price per square foot. There was a decrease of 25% in three-plus bedroommedian prices from a year ago despite a $6.15 million co-op sale in Sutton this quarter.

There were also a few co-op sales under $1 million whereas pricing for three-bedrooms last year traded in lower prices. From previous quarter, there were two co-op sales over $8 million. Condo pricing was also projected higher from last year and especially last quarter with increases in all bedroom categories which can be attributed to larger sales on Park and Fifth Avenues in addition to sales in newer resale properties.

Resale co-op pricing on the West Side deemed higher from both last year and last quarter. At $772,000, median price hiked up by 7% while average price per square foot went higher by 10% compared to a year ago. But resale condo pricing declined from both last quarter and one year ago which can be attributed to fewer two-bedroom sales in close proximity to Central Park.

Versus last quarter, however, luxury median price fell 5% while average price per square foot declined by 3%, in part due to one $48 million transaction last quarter. Resale co-ops projected an increase of 18% in median price and 31% in average price per square foot from a year ago mainly because to growth in sales of over $9 million.Market-share below $500,000 decreased to 23% of sales, lower than both last quarter and one year ago. Lofts compared to Second Quarter 2010, loft median price increased 4% to $1.769 million while average price per square foot increased 7%, to $1,174.

Compared to last quarter, median price went higher by 16% with a 3% increase in average price per square foot. Prices were higher as loft sales over 2,000 square feet.East Side Townhouse median price were raised by 9% from a year ago, to $6.43 million. Compared to last quarter, East Side median price suffered a decline of 20%. Downtown median price went higher by 26% and 15%, respectively, versus last year and last quarter with roughly one-half of the sales over $7 million, situated in the Village and Tribeca. Co-op prices on the East Side increased from both last year and last quarter.