The Primary reason Seniors do not look into qualifying for a Reverse Mortgage is Mis-Information:
I was recently asked to appear on a talk show where a Real Estate attorney asked me to clear up the misinformation that he as well as his clients had in regards to a Reverse Mortgage. How this all came about was when the attorney was doing a consultation with a client and called me asking for my opinion on what I would suggest as an alternative to the client losing their home. Once I was able to obtain all the facts it was my conclusion that the client should obtain a Reverse Mortgage if they wanted to remain in the home The attorney then proceeded to state that he didn’t feel it wouldn’t be a good idea if they were only looking to spend 3-5 years in the home. When I questioned why that would be an issue, he stated they would lose all their equity by obtaining a Reverse Mortgage and it wouldn’t be worth giving their home and all their equity over to the bank for a tradeoff of only gaining 3-5 years to live in the home.
How Does a Reverse Mortgage Work?
You MUST be 62 years of age or older and have a large equity position in the home. A reverse mortgage allows you to borrow against the equity in your home so you access the equity in CASH without having to sell the home. You are not required to make payments on the loan back to the lender as long as you continue to live in the home. However, you need to keep up with the taxes and insurance on the home as well as repairs and association fees if applicable. When you die, the loan will be due payable and your heirs will have time to be able to sell the home or refinance it to keep the property if they are able to obtain financing.
When we get a reverse mortgage — just like when we get a traditional mortgage — the lender takes a security interest in the value of our home for any outstanding balance carried by the mortgager.
- With a traditional mortgage, you own the home even though you owe a lot of money at the outset of the loan. You simply pay off the loan amount over time until you eventually (hopefully) owe zero.
- With a reverse mortgage, you also own the home but you owe a smaller amount at the beginning of the loan and the amount you owe grows until you die or permanently move out of your home. You accumulate interest on the loan so you owe more when it is time to pay back the loan. The loan is usually paid back by selling the home.
Reverse Mortgage Benefits:
With a reverse mortgage, you get access to home equity without selling your home. These funds can offer extra money during retirement to pay off debt, maintain your lifestyle and handle surprise expenses.
No Monthly Mortgage Payments
Like a reverse mortgage, a home equity loan borrows against your home’s equity. But with a home equity loan, you’ll make monthly mortgage payments, which cuts into how much you have left to spend. With a reverse mortgage, you don’t have to make monthly payments. The loan only needs to be repaid when you sell your house, move out or pass away, and is typically paid for with the money from the sale of your home. You don’t have to pay off the loan balance or interest before then
You Own the Home
I know what you’re thinking, you’re worried that having a reverse mortgage will restrict you from doing things like painting it a certain color, making renovations, renting out a room, or letting family member move in.
Again, that couldn’t be farther from the case. Does a regular mortgage restrict us from doing any of these things? NO!
With a reverse mortgage, you are clearly and legally the owner. You are on the title.
The BIGGEST drawback of a Reverse Mortgage is the FEES:
Lenders charge a number of fees to close on and maintain a reverse mortgage. While you don’t have to pay the majority of fees until you leave your home, you could receive less money overall than if you had sold the home outright. This is where shopping around will play a BIG ROLE. Many of the fees can be waived by the lender but in most cases, they will play hardball with you. SO do your homework and shop around.
Eligibility requirements can vary depending on the type of loan you’re taking out and the lender. HECMs have the following requirements:
- Be at least 62 or older – You cannot qualify if you are younger than 62, even if you are already retired or are disabled.
- The property must be your primary residence – You must live in the property. It can’t be a vacation or second home. After taking out your reverse mortgage, you cannot live elsewhere for more than six months for nonmedical reasons and more than 12 consecutive months for medical reasons or you will need to repay the loan.
- Your home must be paid off or have a low mortgage balance – The government requires that the reverse mortgage has the first-lien position. This means your home must already be paid off before you take out the reverse mortgage or the reverse mortgage proceeds must be enough to pay off you’re remaining home loan.
- Meet with a HUD-approved counselor – You will be required to meet with a HUD-approved counselor, either by phone or in-person, to talk about the financial consequences of taking out an HCEM, analyze your situation and consider alternatives to a reverse mortgage.