Is It a Good Time for a Reverse Mortgage
Michael Branson (CEO ARMC) 3/6/08 6:38pm
As industry professionals, we often have an opportunity to sit in on conference calls on market trends and other things that affect reverse mortgages and the senior borrowers who get them. We were on one today that echoed something that we have been saying so it seems that it’s to a point where we should pass this information on to everyone. Reverse Mortgages have gained in popularity but it seems that there has been an increasing amount of negative press lately and many senior borrowers have become hesitant to consider this financing tool available to borrowers age 62 and older. Is a Reverse Mortgage a safe loan and is now a good time to get one? Those are two questions we hear all the time and we say ABSOLUTELY to both!
With regard to the safety and all the negative press as of late, the reverse mortgage is probably the safest loan available to any borrower at any age even though it is available only to borrowers age 62 and above. The borrowers must obtain third-party counseling and should have their family members and/or trusted financial advisors involved in the entire process. As is the case with anything in which people are involved, there is a possibility that someone, somewhere, will try to take advantage of others. However, every article I’ve read so far about abuse related to reverse mortgages, were centered around one of two things; either the person originating the reverse mortgage was selling another product to relieve the senior homeowner of their reverse mortgage funds, or someone felt the proceeds did not benefit the borrower enough for the fees they had to pay. This is why we say that the family and financial advisors of the borrowers should also be involved in the process. Do not to obtain your reverse mortgage from anyone selling other products.
Also, some of the press is not deserved and misreported. One of the closing statements that was recently brought to me by the son of a reverse mortgage borrower who was livid because his father paid what he felt was way too much in fees to only get $37,000 in cash (actually, a line of credit). At first I felt that he may be correct, reverse mortgage fees with the mortgage insurance premiums, etc can be high so I thought that $37,000 sounded very low and maybe not worth the investment…until I saw that his father also paid off a $156,000 existing lien on his home that was a higher interest rate and he was making a mortgage payment of over $1,025.00 per month that he really could not afford. This was another deal that the press could have had a field day with if they only reported that he paid $15,000 in total costs to receive $37,000 without taking into consideration that he paid off his existing debt and never had to make another payment for life and he now had a line of credit in the amount of $37,000 available to him for his use.
As to the second question regarding whether or not now is a good time. Now is an excellent time. Aside from the borrower’s age and the property location, the other factors that determine how much money borrowers can receive on their reverse mortgage are the property’s value and the interest rates. Property values have been declining for a while now and are projected to continue to go down at least through the end of 2008. Now is the perfect opportunity to make the most of the property’s value before they fall to a lower level and the borrower does not qualify for as much money. And then there is the interest rate part of the equation. The fully indexed rate for a HUD HECM is below 5% which means that the borrower will receive the maximum amount of cash available under the program.
The bottom line is that now is the best possible time to get a reverse mortgage and borrowers and family members should take a good look at their options. If you have been holding back because of an article you read with some horror story, consider the circumstances and make sure you have the safeguards in place. Don’t let uninformed or biased reporters or authors push you one way or the other, take a good look and see if it’s right for you and if it is, now is a great time to be a reverse mortgage borrower!