There are a lot of misconceptions when it comes to reverse mortgages. For that reason, these mortgages have not been utilized by Real Estate and Financial Professionals to help there senior clients live a better retirement.
I recently listened to the most in-depth interview regarding Reverse Mortgages that has probably ever been done by Steven J. Sless of The Steven J. Sless Group of Primary Residential Mortgage. Here is the interview.
He answers a lot of the unclear statements revolving around Reverse Mortgages and also mentioned how Reverse Mortgages could even help seniors downsize or Right Size into a new home. Without having to worry about signing a new 15 or 30-year mortgage as a retiree.
It's fascinating and something you should listen to if you are not familiar or don't completely understand these types of mortgages.
Here is a general break down of Reverse Mortgages.
What is a Reverse Mortgage
A reverse mortgage, also known as a Home Equity Conversion Mortgage or HECM, is a unique type of mortgage explicitly designed to help seniors utilize their home equity.
A reserve mortgage is a mortgage loan, but it's different for one key REASON—no need to make a mortgage payment.
This type of mortgage loan is particularly for senior homeowners—62 and above—who set aside a specific portion of the home's equity as collateral.
The loan repayment occurs when the last surviving homeowner dies –or moves out of the property. The remaining portion of the equity goes to the estate or heirs.
How Does a Reverse Mortgage work when you die?
Planning for the future by seniors has different sides to it—one of which is the impact of their debts on their loved ones and heirs.
A reverse mortgage may seem attractive to consider, but one of the most reasonable and common questions asked is, what happens to a reverse mortgage when death occurs? What becomes of the loan balance? Who shoulders the repayment of the debt?
A reverse mortgage is designed to assist seniors, but it also takes into consideration the heirs.
As stated earlier, you don't have to repay a HECM reverse mortgage as long as one of the eligible non-borrowing spouse (NBS) or borrower lives in the home, while paying the required property charges.
As soon as the NBS dies—or the last borrower—the reverse mortgage becomes Due.
At this time, a property appraisal is requested, and the estate or heir is informed of their options to settle the loan balance.
There will never be a debt passed down to their loved ones.
Reverse Mortgage Options?
You should discuss and receive all available options for your unique situation from a licensed HECM professional.
There can be multiple options at your client's disposal to make a Reverse Mortgage work for them, but you can not get all this information without getting their situation assessed.
Generalizing a Reverse Mortgage without contacting a professional could lead to making an uninformed decision about whether or not a Reverse Mortgage is right for your client.
There are protections and safeguards available. Reverse Mortgages are designed for seniors and are insured by the Federal Housing Administration (FHA).
A Few Trusted Resources Discussing Most Popular Options:
What are the Pros and Cons of a Reverse Mortgage?
Pros
- Your clients can purchase a new home using a Reverse Mortgage
- It's a loan that caters to homeowners and buyers who are 62 and above for a more fulfilling retirement
- They have the right to live in your home and also retain the title to it. Like any other mortgage, you're to meet the loan obligation, keep up with insurance, taxes, fees, and maintenance.
- They can have the advantage of your fund as a lump sum; tap into a line of credit as needed. Or even a stream of monthly advances for a certain period—it may be for as long as they live in the home. Borrowers who go with a fixed-rate loan will get a single disbursement lump sum payment; people with adjusted rate mortgage will get other payment options.
- Pay off the existing mortgage on there home with funds available from your reverse mortgage. Even with the existence of the lien on your home—because of the unpaid debt on the reverse mortgage—no monthly principal payment or interest is necessary; that's freedom from monthly mortgage payment expenses.
- No need for monthly mortgage payments as long as they live in the home while meeting their obligations to pay your homeowners insurance, property taxes, and maintenance of the property. Like any other loan, you must fulfill your loan obligations.
- The reserve mortgage can finance the Federal Housing Administration (FHA) and the Mortgage Insurance Premium (MIP).
- Loan proceeds may be seen as non-taxable—you can consult a tax professional for further clarification.
- Social security or Medicare benefits are not affected by a reverse mortgage in most cases.
- You can refinance your reverse mortgage if, in the future, your home increases in value—this will grant you access to more proceeds.
- With the repayment of the loan, the available equity goes to you or your heirs.
Cons
- As interest on loan and fees accumulate, the loan balance increase
- The loan limit is pegged at $726,525, and that means the amount you can borrow depends on this value regardless of higher home value.
- The homeowner will have to pay property taxes, insurance, and homeowner association fees while also maintaining the property.
Conclusion
I highly recommend you listen to the interview by Steven J. Sless and contact a Reverse Mortgage professional in your area so you can add this to your bag of resources to provide a service that is not common knowledge at this time.
As someone who is in the industry and who personally knows someone who has nothing but good things to say about how a Reverse Mortgage has helped them in retirement- This is a fantastic tool to help you close more loans as well as genuinely helping seniors live a more comfortable retirement.
