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In 2014 Reverse Mortgages Are No Longer a “Last Resort”

July 1st, 2014
     

I’ve been told to wait on taking a Reverse Mortgage as a last resort. Why do you think a CPA said that? Is it a loan that is non-reversible? Do you pay interest on the cash in a line of credit when it is spent all the to its end? If a house is paid off & money is tight, but livable, why would a senior take a reverse mortgage? It seems like it only puts them in financial debt until they die or find it impossible to sell if the loan needs to be paid back before any house can be sold to be profitable to owner, is this correct? it seems the people selling this product never touch on a negative, but in order to make a decision I need to know all the negatives. Pls. help. Also are the closing costs negotiable? I had one broker say she could save $1000 on closing costs, while another did not offer it. Pls. helpThanks..

 

Hi Torrie,

 

Let me start by saying that we are a reverse mortgage lender who will be the first to tell you that reverse mortgages are not for everyone.  But that’s true of any financial product, there just isn’t any one that is perfect for everyone.  A reverse mortgage can be a great financial tool when used by the right borrower and for the right purposes.  You need to assess your circumstances to see if this is the right move for you based on your goals and circumstances.

 

For example, do you have heirs and is your primary concern to leave an inheritance or do you need some additional income to live now?  Can your heirs help you if you would rather not tap into your equity to ensure that you can leave it to them?  Will the reverse mortgage adequately improve your quality of life or will you still be too stretched to live comfortably, even after you get a reverse mortgage?

The reverse mortgage can be a last resort measure for some folks to stay out of foreclosure, but if you still cannot afford the taxes, insurance and maintenance on the home and to live comfortably, then selling and downsizing might be a better alternative for you.  It is a default on the loan if you do not keep your taxes and insurance on the property current so if by having the reverse mortgage these would no longer be issues for you, a reverse mortgage is not the right choice for you.

 

On the other hand, if the reverse mortgage will allow you to live in your home comfortably, allowing you to easily pay any expenses and to live life the way you want to live, then it might be a good loan for your circumstances.  The loan never has a pre-payment penalty and you still own your property just as you would with any other loan, so if you decide to sell later and pay the loan off, you can do so.

You do need to remember that as long as you are able to live in the home and not make payments the interest will accrue on any funds you actually borrow, but you receive an amortization schedule from the lender from the very start so you are kept informed of what you would owe at any time from the date of application (not counting any additional draws you might make).

Borrowers who take a reverse mortgage now and have a line of credit available to them that they do not use, do not accrue interest on any funds they have not borrowed and the line of credit grows on the unused portion annually.  In other words, the current growth rate is about 4% so if your line is $100,000 and you are not using the money, it stays in the line and no interest accrues the unused portion, but at the end of the year, the line grows by about 4% and your new line of credit available would be approximately $104,000.

Waiting doesn’t always make sense for borrowers because loan programs can change and available amounts could be reduced in the future.  Borrower’s ages, interest rates and property values all affect the amount available to borrowers.  Right now rates are still so low the maximum amount that HUD will allow under the program are being given when rates are considered.  If rates go up just 1% that would drop the amount available to borrowers substantially so waiting could be a risky proposition, especially for those looking to maximize benefits.

Finally, with regard to the closing costs.  Some costs are out of the lenders’ control while lenders can control others.  There are also times when the amount that the loans can be sold for in the secondary market may allow lender to offer to charge less or even pay some of the borrower’s fees.  I would definitely tell you to shop around and get a minimum of 3 quotes from companies like ours that are Better Business Bureau A+ rated companies.

Remember, bigger is not always better!  Some companies want to tout their size but then they have huge expenses they have to carry as well and they expect youto pay those costs.  Just remember, big companies and famous spokespersons are big expenses and if it’s the same government-insured loan but at a higher cost just for the privilege of going through that company, then it helps them and not you.  This loan is all about you.  Make sure you get the best deal and the best program for your circumstances.  If you’re not sure about something, don’t be afraid to ask.  We’re here to help you.

 

Also See: 

Reverse Mortgages are NOT a “Last Resort”

Reverse Mortgages as a Last Resort? Forbes Get’s It Wrong

 

Where can I find out more?

All Reverse Mortgage® is eager to answer your questions! If you are interested in a quote  please call us Toll Free (800) 565-1722 or request online by clicking here »

“In 2014 Reverse Mortgages Are No Longer a “Last Resort”  by Mike Branson– Add me to your circles 

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2 Responses to “In 2014 Reverse Mortgages Are No Longer a “Last Resort””

  1. Torrie says:

    You sent a reply, but I may have missed an answer to one of my questions. Why would a CPA say a reverse mortgage is to be taken as a last resort. It may sound strange, but I want to know all the risks, negatives, and the worse scenario of getting this kind of a loan. I am 72 years old & own a home free of a mortgage at this time. Why would I want to take a loan with interest being added on what I use & on closing costs?

    would it be better to wait until it is a necessity & how long would it take to get the reverse mortgage if a financial crisis arose? You mentioned to get 3 quotes from different loan companies. Would this make a difference in the closing cost or the entire loan with the quotes of interest paid; required. I thought it was a government controlled program?

    Also is it possible to purchase a second home in another state using the collateral of the RM? I was told the value of my home is $143,000.

  2. Mike Branson says:

    Hi Torrie,

    I wish I could tell you why some CPA’s and other professionals say what they say, but I really can’t tell you what is in their minds. I have had numerous conversations with tax professionals and accountants in the past and most after I really get into the program with them and how it works, usually tell me that they have at least one client that the loan would work really well for. I have several CPA’s now who regularly have their clients call me when they have the need. Just like anything, whether it’s reverse mortgages or gluten free diets, you’re going to have people of all walks of life have opinions – and sometimes based on nothing more than hearsay.

    Just this morning I received an email from a past client who stated that the loan I did for them in the past saved them and has made their life so much easier in retirement and asked me if I could assist their sister who is turning 62 soon. I think that’s a great measure of success. I have read about many reverse mortgage “horror stories” and they almost always revolve around where the money went (somehow the borrowers were scammed out of their proceeds), the fact that the heirs didn’t have the equity in the home that they thought they should have (but none of these individuals were able to help the senior homeowners with their living expenses). We have been able to debunk many urban myths surrounding reverse mortgages over the years as many times the issues that many people had were directly related to borrowers losing their funds to scams or relatives; property values that fell drastically that would have created an equity issue for any loan when the borrowers were able to take out 100% of the value of the home based on the deflated value, regardless of accrued interest (even though with the non-recourse reverse mortgage loan and the Mortgage Insurance saved borrowers and their heirs from any possible repercussions due to the falling values).

    So in all honesty I do not know if the CPA with whom you spoke had a specific predisposition that had some experience that he had actually taken part in that made him make his statement (and whether I could tell you why that could have been avoided) or if he is one of the individuals who has never been involved in a reverse mortgage or with anyone who has but read something somewhere and has formed his opinion accordingly without full knowledge of the facts of the particular case. I can tell you that in most instances, the reporting that we review is inaccurate and the author is trying to sensationalize a story when reporting so I can’t say.

    As I stated in my previous response, reverse mortgages are not for everyone. Carefully considering the circumstances and having your entire family involved from the very beginning is a huge benefit. We find that if there are other alternatives from the start, they can be discussed, before the loan is originated. If the family is not able to assist the older homeowner, this is also brought to light and then when the homeowner passes, there is no surprise that the loan was obtained and the equity has been utilized.

    As for your last two questions, you can use your reverse mortgage proceeds for any use you choose. If you want to buy a second home with the funds, you may. you have to be sure that the home on which you obtained the reverse mortgage is always your primary residence though or the loan can be called due and payable. HUD insures the loan and has given the lenders the parameters about the program. As part of the program regulations, HUD has capped the amount that lenders can charge both in the amount of the origination fees and in the other fees that can be charged. HUD does not set interest rates and the lenders can charge less fees than the maximum amount allowed by HUD if the market will allow.

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