I’m often asked by people to explain how the reverse mortgage works and also about the pros and cons.
Because of the flexibility and options that are available with a reverse mortgage, it’s hard to answer the first question easily. Each reverse mortgage borrower has different needs and concerns. This is the beauty of the HUD-insured reverse mortgage: we customize it to meet your needs. We can also adjust it if your needs change over time.
Remember, every borrower’s situation is different and the only way to find out how you can benefit and discover if a Reverse Mortgage is even right for you is with a free consultation with your reverse mortgage expert.
Pros of reverse mortgages:
Here are just a few examples of the way I have helped recent clients. Each illustrates the “pros” of Reverse Mortgages, including the different ways Reverse Mortgages can benefit borrowers.
A recent client of mine owns a home valued at $550,000. She owed $160,000 on her conventional mortgage, and was making a monthly payment of $1,100. Based on her age and the value of the home, she was eligible for a reverse mortgage of $360,000. Here’s how it worked for her:
First, we saved her $1,100 /mo. payment by paying off off her $160,000 mortgage. That still left her with a $200,000 line of credit to use as she wished and she NEVER has to make a payment. Even better, her $200,000 line of credit grew over time with the value of her home.
Could we do the same thing for you?
Here’s another client’s success story;
These folks live in Marin County and own a beautiful home in San Rafael. They both live on fixed retirement income and were supplementing their lifestyle by using a conventional home equity line of credit from a large well-known bank. Fortunately, they had no first mortgage.
All they owed was their line of credit. But they were still stretched thin and pinching pennies to get by on retirement income; and they had just about used up their Line of credit. As they approached the upper limit of that line of credit they asked their banker if they could get the line of credit increased.
Sadly, with today’s strict lending standards they were turned down. They were referred to me to see if there was something I could do to help out. This is how I was able to help new friends and clients.
First, their home was appraised at $600,000. They owed $240,000 of their $250,000 on their line of credit with the bank. They were just about maxed-out! Property-rich but relatively cash-poor. Worse, they were still making payments of $900/mo!
I ran the numbers and here’s what I came up with for them. It may surprise you!
I was able to obtain a new reverse mortgage of $445,000 (based on their age and value of their home). That means they received $445,000 to use as they wished.
Wisely, they first paid off their their existing $240,000 line of credit loan and got rid of their $900/mo. payment.
With the remaining $205,000 of their reverse mortgage line of credit, they arranged to receive $2,000 per month. That number could be increased or decreased later on, but that was their decision at the time. Maybe they wanted to help a grandchild through college, maybe they needed more money at the time to travel; or, maybe they wanted to invest some part of it to earn even more income each month.
Maybe they just wanted to enjoy having more money to spend during their lives.That was their choice.
So, bottomline, they increased their household cash flow to $2,900 per month. No more payment on the old loan and NO payment on the new one.
Can you imagine the relief and even joy they felt by reducing their debt and increasing their income?
Those are just a few examples of how some of my recent clients are utilizing the HUD-insured reverse mortgage.
There are some “cons” for you to consider, also;
1) Since there are no payments to be made, the interest charged on the loan is being deferred and the loan balance is increasing over time. The equity in the home is being used a little at a time so in the end there will be less equity upon sale of the home. For a homeowner that wants to pass on the home unencumbered to their heirs, this is not the loan for them. I find that most children of my senior clients just want their mom and/or dad to be happy and secure and aren’t concerned about the equity being passed on 100%. After all it is mom and dad’s home !!
2) If a reverse mortgage borrower has a reverse mortgage starting from their early 60’s there could be less or no equity available when it’s most needed. That’s something to consider before arranging a reverse mortgage and it’s something I’m very clear about with all borrowers.
3) Other than that I can’t think of any other downsides. It’s interesting how when I hear from someone that reverse mortgages aren’t good; they never seem to be able to explain why that is. My suggestion is always to get the accurate, honest information from an expert. Only with accurate information can one make an informed and educated decision. I also always suggest that family be brought into the process so that everyone understands the pros and cons.
That’s it for today..enjoy the upcoming summer months !!