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But Wait, There’s More… Reverse Mortgage Facts The Media Needs To Know

August 29, 2009

Man reading newspaperWith the fear factor and incorrect information the media is publishing, seniors don’t even want to include a reverse mortgage with other options they are considering to determine which would be the best for their situation.  Unfortunately they just assume the reverse mortgage shouldn’t be done and that any other option would be a better decision.  Maybe another option would be best, maybe not.  The media needs to stop throwing the baby out with the bathwater and let the decision be based on the facts of the reverse mortgage, not on a fear factor.

The media and politicians need to stop assuming that a conventional mortgage or HELOC is available to seniors.  Generally seniors don’t qualify for these loans.  And even if they do, they too have costs similar to the reverse mortgage, a higher interest rate than the reverse mortgage, and risks to the homeowner and the lender when “life happens” and payments can’t be made.  Even if they do qualify today, what happens in six months, a year, two years or five years when they can’t make the payment?  Doing the reverse mortgage instead of a conventional mortgage or HELOC is generally a better option for seniors.  Read “Is Waiting To Do A Reverse Mortgage The Best Decision?”

Reverse mortgages are not riskier or more complex than any other financial decision made by seniors, or anyone else for that matter.  In fact, NOT getting a reverse mortgage could be riskier for a senior.

Homeownership offers more benefits than renting.  One owns the home, and can benefit from the equity.  If renting, one has the expense of monthly payments and covering utilities (whether included in the rent or separate) and insurance.  If a senior does the reverse mortgage, payments are not required which improves their cash flow (no mortgage or rent payments).  The amount of their utilities, taxes, insurance and maintenance of their home is probably less than monthly rent of another property and they are at the mercy of future escalating rental rates.  If they can’t afford the rent payments where are they going to live?  On subsidized housing?  The reverse mortgage allows them to stay in the home without monthly payments and allows them control and choices of their living conditions.

Reverse mortgage borrowers are, however, still responsible for paying their taxes, insurance, and maintaining the home as they would be under any circumstances.  If they don’t pay taxes the county can foreclose, if they don’t have insurance and there is a fire or other destruction to the home, they won’t have a home, if they don’t maintain the home and it becomes really run down the city may fine and/or evict them whether or not they have a reverse mortgage.  If they are renting and can’t pay the rent they would be evicted.

Another common statement is the reverse mortgage has high closing costs – compared to what?  What other financial option is available that offers seniors the same benefits?

It shouldn’t be considered a loan of last resort.  As Mary, one of my borrowers who used the loan in order to retire stated, “When you retire is IS the last resort – you no longer have that income coming in.”  So what do you consider a last resort?

That reverse mortgages could be the “next sub-prime” mortgage is another fear the media and politicians are forcing on all of us with no substantial or viable comparisons.  Don’t let this keep you from a reverse mortgage, read my article, “Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In A Lender.”

The reverse mortgage has protections unlike any other loan or financial option.  Borrowers are required to go through third party HUD approved counseling which reviews the program, costs, positives and negatives, risks, and other options that may be available for them.  HUD is implementing a new counseling protocol for added protections.

Enjoying Life with Their Reverse Mortgage

Enjoying Life with Their Reverse Mortgage

Let’s review the facts of some benefits a reverse mortgage provides:

  • The title stays in the borrower’s name same as with any mortgage.  The borrower owns the home, no one else does.
  • The borrower may be able to stay in their home as long as it’s their primary residence or until their 150th birthday.
  • Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
  • A borrower won’t lose their home because of a reverse mortgage – they don’t have to make monthly payments.  They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
  • The reverse mortgage funds are tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
  • The proceeds are not considered income so Social Security and Medicare are not impacted and one can receive Medicaid.
  • The HECM is government insured and guaranteed to be available for borrowers. (Currently proprietary reverse mortgages are not available or are limited by county and city offerings.)
  • Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
  • Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options.
  • There are no out of pocket costs, income or credit qualifications for the reverse mortgage.
  • There are no prepayment penalties.
  • Seniors can have money for covering their everyday living expenses, making home repairs, covering medical expenses, paying for long term care, paying taxes and debts, paying off their current mortgage to improve their cash flow, buy a new car, taking a desired vacation or visiting children who live out of town.
  • The reverse mortgage has helped many seniors save their home from foreclosure.
  • The reverse mortgage gives seniors their security, independence, dignity and control.

Ed wrote, “Our reverse mortgage is great.  Gives us some elbow room.  Special thanks to you.”  Now these are the facts the media should be using!

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

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19 Comments leave one →
  1. John Thompson permalink
    September 3, 2009 1:12 pm

    I bought my house in Feb., 2008 for 282,000. I put down 48,000 and the current balance is 235,000. Would a reverse mortgage be right for me. I am 63 and my wife is 70. Thank you.

    • September 4, 2009 1:49 pm

      HI John,

      Thanks for your question posted on my Blog. The reverse mortgage is a wonderful option to pay off a current mortgage and improve one’s cash flow (no monthly payments mean more money available to you each month).

      To determine how much is loaned on for a reverse mortgage, we use the age of the youngest borrower, the home value and an Expected Interest Rate.

      Currently the Fixed Rate’s Expected Rate is lower than the Adjustable Rate’s Expected Rate so this means more funds are available on the Fixed Rate program and can be a more favorable option when one is paying off their current loan(s). (Note that the Fixed rate requires borrowers so pull all funds available in a lump sum so it is not the best option for everyone.)

      The older one is, the more funds are available for borrowers. Since 63 is on the lower age range you would probably only will only receive about 45% to 50% of the home value. Which means in your situation, based on the information you provided, there would not be enough reverse mortgage proceeds to pay off your current loan.

      A reverse mortgage expert in your area could provide you more specific details of your situation – I did not actually run calculations so with more specific information a RM Expert can do this for you so you would have a better idea of how much you would be short. If you are going to talk with one I would recommend reviewing the list of questions on what to look for in a lender found on my blog at: https://bethsreversemortgageblog.wordpress.com/2009/06/13/don%E2%80%99t-let-fear-keep-you-from-doing-a-reverse-mortgage-but-know-what-to-look-for-in-a-lender/

      Even if you don’t qualify now, at a future date when you are older and the home values have appreciated, the reverse mortgage may be an option for you.

      Hope you find this information helpful.

  2. September 12, 2009 4:33 am

    Beth,

    Thank you for being one of the few “voices of reason” in our industry.

    Keep up the great work!!!

    Mike Banner
    Founder
    LoanWell America Inc.

  3. February 27, 2010 11:37 am

    Steven, I am writing you privately in response to the comment you left on my blog. After reviewing your website I have found a lot of incorrect information regarding reverse mortgages. While I appreciate your thought and effort into your drawdown clock and your effort to promote it, I will not be approving your comment or adding it to my website. I do not want to lead my followers or viewers to a site that contains so much misinformation regarding reverse mortgages. This contradicts all the effort I am doing to provide the correct and most accurate information to seniors and the public. Additionally it appears you are promoting “best rate reverse mortgages” but I don’t know who you are promoting and that leaves me uncomforable also.

    Good luck in your efforts.

    Regards,
    Beth Paterson

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