In a recent article in the Washington Post, Michelle Singletary wrote a well researched, factual article on reverse mortgages. With only a couple corrections needed as noted by Dan Hultquist, author, Understanding Reverse:
1) Older borrowers no longer receive a greater percentage by excluding a younger spouse. This loophole was closed by HUD in 2014.
2) Foreclosures due to property tax defaults are somewhat rare now that underwriters must assess the borrower’s credit history and residual income (2015 change).
Unfortunately many of the commenters responded with misinformation. In this post I’m going to address these comments to clear up the misinformation that seems to continue to spread about reverse mortgages.
Be Educated – As with a conventional mortgage, any financial product or even a car or other purchase, one should be educated on what they are purchasing. With the revere mortgage, borrowers are required to obtain counseling from an independent third-party HUD approved counseling to make sure borrowers are educated and understand the product.
Use Equity, not lose it -Borrowers don’t lose their equity; they are using it during the term of the loan, just as with a conventional mortgage. The difference being when the loan is being repaid: on a conventional mortgage one is required to make payments during the term of the loan; on a reverse mortgage, the monthly mortgage payments are not required. The loan is repaid when the home is no longer the primary residence of the borrower(s). As with all home ownership, property taxes and hazard insurance is required to be paid. Because monthly mortgage payments are generally not made on a reverse mortgage, essentially one is borrowing the interest and FHA Mortgage Insurance Premiums each month, which increases the loan balance of the loan.
As a non-recourse loan, reverse mortgage borrowers or their heirs do not have to come up with the difference if the loan balance is higher (because they used the equity) than what the home can be sold for. Reverse mortgage borrowers, as with everyone should use their money wisely.
Similar to Conventional or HELOCs – The reverse mortgage is a mortgage like any other mortgage, one is using the home equity. Conventional mortgages allow people to purchase a home, does this mean you are over-extending? HELOCs allow people funds for home improvements, travels. The reverse mortgage is similar, but has special terms for those 62 and older as Ms. Singletary points out.
Homeowners have responsibilities, with or without a reverse mortgage – If one doesn’t pay their property taxes, with or without a mortgage, they could be facing foreclosure. This is not due to one having a reverse mortgage. If one doesn’t have hazard insurance without a mortgage and a storm comes along, they could lose their home. All lenders using the home as collateral for the loan require hazard insurance.
Downsizing – Besides people wanting to stay in their homes of many years, downsizing is not always feasible in today’s market because the smaller homes can cost more than staying where they are at. For those who do want to downsize, many are using the reverse mortgage for purchase to do so.
Using reverse mortgage for retirement and long-term care planning – Financial planners and advisors are suggesting seniors look at the reverse mortgage for retirement and long-term care planning purposes. Wade Pfau, Professor at The American College, shares often writes about reverse mortgages in Forbes and is the author of Reverse Mortgages : How to Use Reverse Mortgages to Secure Your Retirement. Jamie Hopkins of the American College says home equity including reverse mortgages can be critical engines for retirement income.
As with any financial product or purchase, one should do their research and be familiar with the product and terms…especially before making judgements base on misinformation. Work with an originator who isn’t pushing you into the loan, work with a Certified Reverse Mortgage Professional (CRMP), a broker who is local and will meet take time to explain the program and answer your questions.
Would you like to explore a reverse mortgage for your situation? Contact us if you are in Minnesota. As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.
For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.
© 2020 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648
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