Welcome to the Reverse Mortgage Phenomenon
Admin 12/4/09 9:10pm
Welcome to the phenomenon in the mortgage world known as the reverse mortgage.
Well, maybe my photoshop skills are a little off today but I think anyone reading this article has seen at least one of these images. The ads that tout how they can improve quality of life are everywhere and if you're a homeowner, age 62 and over, you see them on the TV or in the mail almost daily. Then there are the articles warning that reverse mortgages may be the new mortgage rip off. So what's the truth about this financing vehicle? Is it a God-send for seniors, or something for which older homeowners need to be wary? It can actually be both, so it pays to understand the loan if you or a loved one are contemplating a reverse mortgage. Reverse mortgages have been around since 1961 and President Reagan signed the legislation to allow HUD to insure them in 1988 on their Home Equity Conversion Mortgage (HECM or "Heck-um") program.
So why the sudden stir and what makes this mortgage so unique? The baby boomer population began retiring on January 1, 2008. What this means is that America will have an unprecedented number of people retiring with many having their main asset being their homes. Gone are the days of the American worker working to the age of 62, retiring with a pension and social security, then passing by age 70. People are living longer and fewer are retiring with adequate income provided to meet their life needs. And in recent years, many have seen their life's savings diminished with the loss in value of their 401K, pensions and stock portfolios.
The huge appreciation most properties have experienced (with the exception of the recent downturn) allows seniors an avenue to augment this growing need for income. A traditional or "forward mortgage", is known as rising equity, falling debt mortgage. The individual pays a payment monthly to pay down the debt thus making the equity higher and the debt lower. The reverse mortgage operates in reverse of that. In a reverse mortgage, the borrower receives payment(s) from the lender, makes no monthly payments and the debt rises while the equity falls as payments, fees and interest accumulate. The borrowers make no monthly payments and the entire amount is paid in full when the loan is repaid.
Income and credit are not considered in qualification criteria, with the exception of the fact that the borrower cannot be delinquent on some federal obligations. There is no minimum income requirement and there are no minimum credit scores. In fact, many borrowers have been saved from foreclosure with a reverse mortgage. There have been so many myths and misconceptions surrounding reverse mortgages. Some earlier versions of the product contained provisions for shared appreciation which hurt seniors, but those provisions are not in the HUD HECM loans.
All of the government loans are known as "non-recourse" loans, which means that the borrowers or their heirs can never owe more than the property is worth, regardless of how long they live in the home, how much they receive in payments through the years, what future values do or how much interest accumulates on a bona fide sale to a third party. A reverse mortgage loan can be expensive, so it's not the best option if you are not planning on using the loan, or do not plan to stay in the property. On the other hand, for some, the reverse mortgage is the only way they are able to stay in their homes.
The bottom line is borrower and family EDUCATION. Find an originator who really knows and understands the product. There have been many programs available in the recent past in addition to the HECM, and although there are currently no private or "proprietary" products available at this time, they have been availably down to 60 years of age...and lower and at a variety of terms and loan amounts. Once the capital markets fully recover, we do hope and expect to see these private products re-emerge which would be great for borrowers of properties valued at over $1,000,000. You need to work with an expert, not just a loan officer from a brokerage or a bank who was doing sub-prime loans last month and is doing reverse mortgages this month.
We at All Reverse Mortgage Company cater to senior needs and reverse mortgages are all we do. At All Reverse Mortgage Company, we are approved to deliver reverse mortgages to every reverse mortgage lender currently offering reverse mortgages. Since reverse mortgage fees are highly regulated, we can choose the best combination of rates, margins and servicing fees for our borrowers from all the lenders in the nation. Borrowers who approach a single bank can only obtain that one option they are offering. The extra cost to you for this service? Nothing. Not only is there no additional cost, we can usually originate the loan at a lower cost to you than the bank. Remember, HUD prevents any lender or broker from charging all but a few of their approved fees and all third party fees will be the same. If you're going to get the same loan or even a higher loan amount and for a lower cost, why not go to All Reverse Mortgage Company and work with the people who have trained hundreds of others in the industry.
Lastly, talk to your family. You're spending the equity that would normally be the inheritance left to other family members and this can be an area of concern...more often to the senior homeowner than to the family members themselves. Most family members we've talked to are finding these times trying enough and they don't have the means to take care of their parents and senior relatives as well as their own families, so they are extremely happy that their loved ones have a way to age in place and dignity.
So if you or a loved one aged 62 or older are looking to find a way to live comfortably in your home or are looking to purchase a new home and downsize (reverse mortgages can be used for purchase, too), give a specialist at All Reverse Mortgage Company a call and let us show you how a reverse mortgage might be just the tool for you!
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You may also enjoy reading through AARP Consumer Reverse Mortgage Information