Skip to content

When you don’t know what you don’t know about reverse mortgages

July 17, 2009

Are you basing your opinion of reverse mortgages on what you and others don’t know?  People say they’ve heard a lot of negatives about reverse mortgages or that they should stay away from them.  When I ask what they’ve heard or why they were told to stay away from them, I get the answer, “I don’t know, I was just told to stay away from them.”  Or they really don’t know much about them yet they are still negative about them.  After I spend time educating them on the facts of reverse mortgages the response becomes much different: “Wow, this could be a life saver for me.”  Or “That sounds wonderful.”  And my clients who have their reverse mortgage in place are thrilled and pleased on how it’s changed their lives for the better – giving them security, independence, dignity, and control.

Don't know what I don't knowSo my question to you is do you know the facts about reverse mortgages or are you basing your opinion about reverse mortgages by listening to the negatives and incorrect statements from those who don’t have the real details?  If you were having health problems, would you listen to a plumber about what you should do about your health or would you go to a doctor who specialists in the area of need for the facts?  The reverse mortgage is the same, get your facts from a reverse mortgage expert, not the media, politicians, a real estate agent, your neighbor, friend or anyone else who isn’t a specialist in reverse mortgages and can provide the true facts.

The media often has someone they call an expert from the financial or real estate industries talk about reverse mortgages as if they know what they are talking about.  However, those of us specializing in reverse mortgages find a lot of incorrect and misleading statements by these so called experts.  They too don’t know what they don’t know because they don’t consult with the true experts in the industry before giving information.  Politicians who are trying to protect seniors haven’t learned the real facts about reverse mortgages so they too are giving advice and/or a fear factor based on what they don’t know.  If they would talk with the experts they may do a better job of providing the facts versus spreading myths.

As a senior advocate and an expert who has specialized in reveres mortgages for 10 years, let me help you get some of the real facts.  Do you know…

  • A reveres mortgage is a mortgage with special terms for senior homeowners 62 and older.
  • You own the home, no one else does.
  • You may be able to stay in your home as long as it’s your primary residence or until your 150th birthday.  (You are responsible for paying taxes, insurance, and maintaining the property and abiding by the terms of the loan agreement.)
  • You won’t lose your home because of a reverse mortgage – you don’t have to make monthly payments.
  • Tax-free money* is government insured and guaranteed to be there for you. (*consult tax advisor – but make sure they know the facts about reverse mortgages)
  • You or your heirs get to keep any remaining equity after the loan is paid off.
  • There is no personal liability to you or your estate when repaying the loan and you or your estate are not retaining ownership.
  • There are no out of pocket costs, income or credit qualifications for the loan.
    • Closing costs typically become part of the loan balance.
    • A credit report is pulled to check for any federal leans or debts that would be required to be paid – not to check your credit score.
  • You can’t access 100% of your home value at the time of your closing – the amount available is based on your age, you home value or FHA lending limit (currently $625,500), and an Expected Interest Rate.
  • The funds may be received in a line of credit, lump sum, monthly payments or a combination of these.
    • Line of credit grows
    • Monthly payments may be received as tenure payments (for life as long as the home is your primary residence) or structured to fit your needs.
  • Historically the interest rate is lower than conventional loans.
  • Closing costs are comparable to conventional loans, in the big picture they are not higher – see my post: “Reveres Mortgage Closing Costs – High or Mythical
  • The majority of the loans are FHA insured (proprietary products aren’t currently offered in Minnesota).
  • There is no magic number for how long you should live in your home – it all depends on your individual circumstances.  However the longer you stay in your home the less expensive it becomes because the closing costs get spread out over a longer period of time (same for conventional mortgages).

While a reverse mortgage isn’t right for everyone, every one should at least know the real facts to determine if a reverse mortgage is right for their situation.  Don’t go the plumber for your health problems.  And don’t go to the media, politicians, a real estate agent, your neighbor or anyone else who doesn’t specialize in reverse mortgages for you to make an educated decision about reverse mortgages — learn the facts from a true reverse mortgage expert.

Retired woman enjoying the security, independence, dignity, and control of her reverse mortgage

Having the facts my borrowers are thrilled with their reverse mortgage.  I’ve been told, “You’re an angel.”  “You gave me my life back.”  And as Sylvia, wrote:  “As a senior citizen, I had been having some concerns with my finances. Being on a limited income made much needed household repairs and property tax payments very difficult to meet.  I was going to have to make a choice soon about whether to continue to live in my house, or move on to an apartment.  The costs of continuing to live in my home were getting beyond my means, but I wasn’t ready to leave the home that I had raised my children in.  I decided to use the equity in my house to make life easier and meet the financial obligations that I had.  Beth Paterson was my representative.  She was so easy to talk to and walked me slowly through the entire process.  She was always there to answer any questions that I had, and continues to even long after the closing!  It was a wonderful experience.”

Base your decisions on what you know from a reverse mortgage expert, not what you or others don’t know.

© 2009 Beth Paterson https://bethsreversemortgageblog.wordpress.com 651-762-9648

Advertisements
19 Comments leave one →
  1. john permalink
    July 27, 2009 6:50 am

    good article….

  2. September 10, 2009 1:44 am

    Beth,

    Enjoy your articles and blog writings. I, like many people not in the mortgage industry, have heard about reverse mortgages but am not very knowledgeable about them. However, as my clients age, I need to understand more about them as an asset based tool for elder clients. From a brief preview of your articles this is my base knowledge:

    1. Available to those 63 years or older
    2. Needs to be positive equity in home or cash at closing to pay off mortgage.
    3. No Mortgage payments after Reverse Mortgage.
    4. Any equity in home is available to homeowner and their estate.

    Now who owns the home in the case of estate planning. From your article it looks like one can stay in the home until the youngest spouse is 150 yrs old. Which means for ones natural life, but what happens when the last remaining inhabitant dies?

    There is no mortgage per se, but as the bank ‘loaned’ the equity I would imagine they have a lien for the amount that they ‘loaned’.

    For example $200,000 home, with $100,000 mortgage balance. Owner takes a reverse mortgage has say $80,000 in equity left after closing etc which she takes in a lump sum. After 30 years she dies, the house is now worth $300,000.00. How does the Estate handle this? If the title never changed hands, then I imagine the Estate sells the home, bank takes $200,000 plus interest and the Estate gets the rest. Does the title reflect a change in ownership at a reverse mortgage closing or does it stay in the homeowners name?

    What happens if we have a repeat of this current market?

    $200,000 home with $100,000 mortgage. Owner takes a reverse mortgage out and takes a lump sum of $80,000 after closing. Then dies after 10 years in the middle of a housing bust and home value is now $150,000. How is this treated from the Estate’s standpoint, or actually, the Lender’s standpoint? I would imagine the reverse mortgage is now $200,000 plus interest and the estate has to come to the closing with cash to pay off the balance of the reverse mortgage?

    Thanks for any help you can provide, I certainly feel that understood correctly that this could be a tool when doing planning, but it needs understanding first.

    Cheers

    Paul

    • September 12, 2009 2:55 pm

      Hi Paul,
      Thanks for your comments and questions. I will try to answer your questions briefly here and then since it appears you are in the Twin Cities, we can meet and I can help guide you though how to use reverse mortgages to help your clients. You are so right, reverse mortgage can be a great tool when understood and used wisely.

      The reverse mortgage is a mortgage, just like any mortgage on the home, but with special terms for those 62 and older. These include no credit score or income to qualify, and no monthly payments required.

      The borrower remains the owner and the property title remains in their name. The borrower is responsible for paying taxes, insurance and maintaining the home as well as abiding to the terms of the loan.

      The loan does become due and payable when the last surviving borrower is no longer in the home as their primary residence. As in your example, at that time, as with any mortgage, the estate is responsible for selling the home at which time the loan balance will be paid. The loan balance includes any funds received as well as the original closing costs, and interest, servicing fee, and FHA’s mortgage insurance premium.

      One of the advantages of the reverse mortgage, and a difference from a conventional (“forward”) mortgage, the reverse mortgage is non-recourse which means there is no personal liability to the borrowers or the estate as long as the they do not retain ownership. So if they are not keeping the home in the estate, the loan would be paid back only from the sale of the property and they estate would not have to come up with the difference.

      This has been an advantage for those who did a reverse mortgage before the decline in home values. They had the use of the funds based on the higher home value but if the loan has become due and payable (moving, passed away, selling) they don’t have to come up with the difference as long as they are not retaining the ownership.

      If the home is sold for more than what the loan balance is the borrower or their estate gets the difference – just as with any mortgage.

      So in either situation it is an advantage to the seniors to be able to use their equity now to meet their needs but not have to worry about a declining market, or leaving a debt to their heirs. As one of my clients said, “It’s a win-win for everyone.”

      Hope this helps. Don’t forget to subscribe to receive continued news, facts and information about reverse mortgages.

Trackbacks

  1. Is your opinion of reverse mortgages denying seniors? « Beth's Reverse Mortgage Blog
  2. One Bad Apple Spoils The Bushel of Reverse Mortgages « Beth's Reverse Mortgage Blog
  3. Irrational Statements Show Ignorance of Reverse Mortgages « Beth's Reverse Mortgage Blog
  4. The Misconceptions of Reverse Mortgages Abound… What Do You Know? « Beth's Reverse Mortgage Blog
  5. Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home! « Beth's Reverse Mortgage Blog
  6. Why are you so afraid of reverse mortgages? « Beth's Reverse Mortgage Blog
  7. Let’s Get Real About Equity Required For A Reverse Mortgage « Beth's Reverse Mortgage Blog
  8. My Reverse Mortgage Funds Are Used… Now What? « Beth's Reverse Mortgage Blog
  9. Should One Refinance Their Reverse Mortgage? « Beth's Reverse Mortgage Blog
  10. Who Should You Believe About Reverse Mortgages? « Beth's Reverse Mortgage Blog
  11. Seventeen Facts About Reverse Mortgages You May Not Know. « Beth's Reverse Mortgage Blog
  12. Questions About Reverse Mortgages Continue Receiving Misinformation As Responses « Beth's Reverse Mortgage Blog
  13. You Need To Know That With A Reverse Mortgage You Remain in Control « Beth's Reverse Mortgage Blog
  14. Reverse Mortgage Borrowers Remain in Control | Beth's Reverse Mortgage Blog
  15. Questions About Reverse Mortgages Continue Receiving Misinformation As Responses | Minnesota Reverse Mortgages SIDAC
  16. Is your opinion of reverse mortgages denying seniors? | Minnesota Reverse Mortgages SIDAC

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: