AARP often says a reverse mortgage should be a last result. And while supporting a legislation bill regarding reverse mortgages introduced in Minnesota they sent out a message for their membership to contact Governor Pawlenty to sign the bill stating, “senior homeowners deserve to be protected from financial fraud that may lead to loss of equity or even foreclosure.” They are using scare tactics and giving false information!
A reverse mortgage is a mortgage that has special terms for those 62 and older to use their equity while they still own and live in the home. Income and credit aren’t considered to qualify and monthly payments are not required during the term of the loan. The loan is due when the home is no longer the primary residence of the borrower(s). When the loan is being paid off, the borrower or the estate keep any difference between the loan balance and the sale price. As a non-recourse loan, if the loan balance is higher than the sale price on the home, the lender is repaid the fair market value and the borrower doesn’t have to pay the difference. The loan documents spell out there is no personal liability to the borrower or their estate, unlike conventional mortgages that can get funds from the estate to cover the loan balance.
Let’s first talk about the statement “should be a last resort.” A last resort to what? You’re having a hard time paying bills; your retirement portfolio has been cut in half; you’re having to work longer or have to go back to work; there are some things you want to do but are short funds to fulfill those dreams or needs; home repairs are needed; and taxes are due; or your struggling to put food on the table. Maybe you could use extra funds for emergencies or peace of mind. You are lacking in security, independence, dignity and control during your retirement.
So when is the time to do a reverse mortgage? You wait and don’t do a reverse mortgage because AARP and others have said “the reverse mortgage should be the last resort.” Why are you struggling? Why do you do this to yourself? Why not have the peace of mind, security, independence, dignity and control that you deserve in retirement?
Doing the reverse mortgage now instead of later could be to your advantage. Monthly payments can be received to supplement your retirement income. Or cash flow can be improved if a current mortgage is being paid off because payments won’t need to be made. And if you chose the line of credit option, more funds become available in the future with the growth rate.
If you do a “forward” loan (if you can even qualify now with the tighter qualifications) you have to pay closing costs and then you make payments. What happens when “life happens” and now you can’t make payments – you can’t work, you’re trying to decide to pay medical bills or the mortgage payments. You’re now in a crisis.
Then when you decide it’s time to tap that “last resort” you’ll be paying closing costs a second time. And there is the possibility that now there won’t be enough funds from the reverse mortgage to pay off that loan. Your financial problem has gotten even bigger. And you may end up going into foreclosure.
So again I ask a last resort to what? Doing the reverse mortgage sooner than later could relieve a lot of stress now and in the future.
Now let’s consider the message AARP sent regarding the Minnesota legislation. Fortunately Governor Pawlenty vetoed the bill. Yes, senior homeowners (anyone for that matter) should be protected from fraud. However this bill would not have protected seniors, it would have negatively impacted them and possibly eliminated the reverse mortgage option in Minnesota. (Read the details on this by visiting our website www.RMSIDAC.com and the What’s New page.)
With a reverse mortgage, like any mortgage, line of credit, or other loan using an asset as collateral, one is USING the equity, NOT LOSING it. The difference with the reverse mortgage is one doesn’t have to make payments during the term of the loan but pays it off when they move, die, or sell. And because it’s non-recourse there is added protection over the other types of loans.
I’m not sure how the reverse mortgage could lead to foreclosure. With the reverse mortgage one doesn’t have to make payments so that risk of foreclosure is removed. There are risks of losing the home even without the reverse mortgage: If you don’t pay taxes, the county can foreclose; if you don’t have insurance, and there is damage to the home you could be without your home.
The reverse mortgage actually often helps seniors keep their home FROM FORECLOSURE. Because income and credit are not considered to qualify, the reverse mortgage can be done to pay off the current mortgage, eliminate mortgage payments and save the home from foreclosure.
If AARP really cares about seniors they will stop using scare tactics and giving false information. They will get the facts by becoming educated and then help seniors by providing accurate information.
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