With the fear factor and incorrect information the media is publishing, seniors don’t even want to include a reverse mortgage with other options they are considering to determine which would be the best for their situation. Unfortunately they just assume the reverse mortgage shouldn’t be done and that any other option would be a better decision. Maybe another option would be best, maybe not. The media needs to stop throwing the baby out with the bathwater and let the decision be based on the facts of the reverse mortgage, not on a fear factor.
The media and politicians need to stop assuming that a conventional mortgage or HELOC is available to seniors. Generally seniors don’t qualify for these loans. And even if they do, they too have costs similar to the reverse mortgage, a higher interest rate than the reverse mortgage, and risks to the homeowner and the lender when “life happens” and payments can’t be made. Even if they do qualify today, what happens in six months, a year, two years or five years when they can’t make the payment? Doing the reverse mortgage instead of a conventional mortgage or HELOC is generally a better option for seniors. Read “Is Waiting To Do A Reverse Mortgage The Best Decision?”
Reverse mortgages are not riskier or more complex than any other financial decision made by seniors, or anyone else for that matter. In fact, NOT getting a reverse mortgage could be riskier for a senior.
Homeownership offers more benefits than renting. One owns the home, and can benefit from the equity. If renting, one has the expense of monthly payments and covering utilities (whether included in the rent or separate) and insurance. If a senior does the reverse mortgage, payments are not required which improves their cash flow (no mortgage or rent payments). The amount of their utilities, taxes, insurance and maintenance of their home is probably less than monthly rent of another property and they are at the mercy of future escalating rental rates. If they can’t afford the rent payments where are they going to live? On subsidized housing? The reverse mortgage allows them to stay in the home without monthly payments and allows them control and choices of their living conditions.
Reverse mortgage borrowers are, however, still responsible for paying their taxes, insurance, and maintaining the home as they would be under any circumstances. If they don’t pay taxes the county can foreclose, if they don’t have insurance and there is a fire or other destruction to the home, they won’t have a home, if they don’t maintain the home and it becomes really run down the city may fine and/or evict them whether or not they have a reverse mortgage. If they are renting and can’t pay the rent they would be evicted.
Another common statement is the reverse mortgage has high closing costs – compared to what? What other financial option is available that offers seniors the same benefits?
It shouldn’t be considered a loan of last resort. As Mary, one of my borrowers who used the loan in order to retire stated, “When you retire is IS the last resort – you no longer have that income coming in.” So what do you consider a last resort?
That reverse mortgages could be the “next sub-prime” mortgage is another fear the media and politicians are forcing on all of us with no substantial or viable comparisons. Don’t let this keep you from a reverse mortgage, read my article, “Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In A Lender.”
The reverse mortgage has protections unlike any other loan or financial option. Borrowers are required to go through third party HUD approved counseling which reviews the program, costs, positives and negatives, risks, and other options that may be available for them. HUD is implementing a new counseling protocol for added protections.
Let’s review the facts of some benefits a reverse mortgage provides:
- The title stays in the borrower’s name same as with any mortgage. The borrower owns the home, no one else does.
- The borrower may be able to stay in their home as long as it’s their primary residence or until their 150th birthday.
- Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
- A borrower won’t lose their home because of a reverse mortgage – they don’t have to make monthly payments. They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
- The reverse mortgage funds are tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
- The proceeds are not considered income so Social Security and Medicare are not impacted and one can receive Medicaid.
- The HECM is government insured and guaranteed to be available for borrowers. (Currently proprietary reverse mortgages are not available or are limited by county and city offerings.)
- Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
- Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options.
- There are no out of pocket costs, income or credit qualifications for the reverse mortgage.
- There are no prepayment penalties.
- Seniors can have money for covering their everyday living expenses, making home repairs, covering medical expenses, paying for long term care, paying taxes and debts, paying off their current mortgage to improve their cash flow, buy a new car, taking a desired vacation or visiting children who live out of town.
- The reverse mortgage has helped many seniors save their home from foreclosure.
- The reverse mortgage gives seniors their security, independence, dignity and control.
Ed wrote, “Our reverse mortgage is great. Gives us some elbow room. Special thanks to you.” Now these are the facts the media should be using!