Over the years I think I’ve heard it all regarding the pros and cons of reverse mortgages. I’m continually dumbfounded by the negative perceptions surrounding this Govt. insured loan designed for adults over 62. After having arranged over 300 reverse mortgages in the past 7 years I can confidently say these perceptions are often misguided. The unfortunate outcome is that many senior homeowners listen to someone that doesn’t have an understanding how they really work, and then won’t take the time to understand the truths about HUD’s reverse mortgage. In the end they are missing out on a life changing transaction. Let’s address a few of the untruths and also a few of the truths.
I often hear that reverse mortgages are expensive. The reality is there are options available today that weren’t available as recent as 2 years ago. I’ve helped many clients arrange their reverse mortgage in which the only closing costs were the appraisal and the small fee for HUD’s mandatory counseling . Depending on the client’s desire and/or needs, closing costs will range anywhere from $125 to $20,000. It’s important to understand there are options and the choice is the clients to make.
The number one misconception surrounding RM’s is that the bank holds title to the home, and that the bank takes the home when the borrower passes or leaves the home. We hear things like “isn’t that the loan where the bank pays me over time, and when the money runs out they take the home”?…. Really? You’re pulling my leg, right ? Where this thought comes from I have no idea ! RM clients own their home, the title remains in their name, there is no difference in the way title is vested. All equity in the home is the clients or their heirs, NOT the banks.
The only con that I’ve been able to come up with after years of arranging reverse mortgages is this;
Because there are no payments being made on the loan, interest is being deferred. The loan balance grows over time, so in the end there is going to be less equity in the home to pass on to heirs.
The idea that RM’s are expensive is a matter of perspective. I once had a client tell me that her trusted advisor suggested that she sell her home because the reverse mortgage was too expensive. Well, first of all, my client didn’t want to sell and leave her home. Secondly, if she would have sold her $450,000 home and paid a 6% real estate commission, the cost of selling would have been double the cost of arranging her RM. Not only was the RM less expensive, she is still in her home where she is most comfortable. She has a lifetime income stream from her RM and she never has to make a monthly payment. To me that’s peace of mind, and I’m really happy (so is she) that she didn’t take the advice of someone who was giving misguided opinions/advice.
There are many great benefits of RM’s and I could write a book on them, but I won’t do it here, however here’s a few highlights;
RM’s are FHA insured loans. They are also non-recourse loans. What this means is that neither the client nor the heirs are responsible for the RM debt. If at the time of disposition of the home the debt exceeds the value of the home, then the FHA insurance kicks in. The lender’s loan is paid off in full and there is no liability to the homeowner or the heirs. This is a huge benefit that most people don’t realize.
RM’s can be customized to meet the needs of each individual client. RM borrowers can take a lump sum, set up monthly payments, or setup a home equity line of credit. (or a combination of these options) Flexibility is the key here. Yes, they’re very flexible . There is no penalty to pay off RM’s in full. There are no restrictions on how funds are used. There are no payments to be made unless the client wants to.
Many RM’s are used to pay off an existing conventional loan, thus eliminating the monthly mortgage payment. The list goes on regarding the positive benefits of a HUD reverse mortgage. Oh ya, did I mention that as of this writing qualifying is not credit score or income based? The amount that a client is eligible for is based on age, current interest rates, and the value of the home.
President Reagan signed this program into law back in 1988 and the first HUD insured RM was made in 1989. Since that time over 800,000 RM’s have been made to senior homeowners . Don’t listen to the naysayers, find out the truths, educate yourself and make an informed decision. That’s the responsible way to approach a Reverse Mortgage loan !
If you or someone you care about would like to learn more and evaluate if a reverse mortgage is an appropriate solution, give me a call to setup a private in home/office consultation.
Have a great day !!