What To Know About Reverse Mortgages
While Reverse Mortgages have certainly come under scrutiny in recent months, some recent revisions and safeguards for borrowers have made the product more viable, saleable, and compatible.
First … let me clarify.
Reverse Mortgages are not a good product for every senior! But, here is why a Reverse Mortgage (both for a home already owned and a new purchase) may make sense for some seniors …
Reverse mortgages are good for:
- If a senior (62 years of age or older, by definition) is struggling financially to make ends meet.
- If a senior is using credit cards to pay bills and exist on a day-to-day basis.
- If a senior has tapped their cash reserves, or even a large portion of their savings.
- If a senior has a mortgage, and are late on their payments, but have equity in their home.
- If the property cannot sell in the present market.
If eliminating housing payments allows a senior to stay in their home and balances their income to expenses. (A senior never makes a monthly payment in a Reverse Mortgage).
The above examples work for refinance loans as well, so why consider a Reverse Mortgage for a Purchase?
- Again, with a Reverse Mortgage, you can buy a home and never make a payment again.
- If having no monthly housing expense (besides taxes, insurance, utilities, and maintenance) is important to a senior, then this lending product is the one for them to consider.
You COULD pay cash for the new property and achieve the very same result, but your cash is then depleted. Depending on the age of the senior Buyer, they would be required to put down anywhere from 20% (minimally) to 45% down (or more, if preferred) on the purchase price. The remaining principal balance then is 55% to 80% of the sales price.
Interest accumulates for the remaining term of the loan, until the senior sells, moves out of the home, or would pass away, which leaves the remaining equity to their heirs. NO PAYMENTS are ever made! The equity just erodes over time. Since these are Non-Recourse Loans (HECMS), the heirs are protected (never owe more than what the home sells for or what is owed on the loan).
Borrowing this way allows the senior their independence, and does not eat-up their entire savings. It still allows them to live at home “rent free”.
Keeping an open mind to ALL financial opportunities and options is key. Find a qualified, knowledgeable and certified Reverse Mortgage Specialist to educate yourself to the pros and cons of these loans as they relate to your personal financial scenario. Reverse Mortgages CAN play a vital role in today’s society and markets … and do in the right instances.
About the author: Gene Mundt, Professional Mortgage Banker and Reverse Mortgage Specialist for Chicago Bancorp. You can send directly inquires or questions to Gene by phone 818.277.4036, his email gene@chicagobancorp.com or via his website at GeneMundt.com
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I agree that keeping an open mind to any and all financial opportunities is the way to go. Sometimes we have a lot of opportunities coming our way but people just get a bit stuck in a limited mindset about money.
Thanks for sharing. It’s always a good idea to look at all options available in order to make the best financial decision, and it is shame that some people don’t open their mind to the possibilities that there could be something better out there for them.
Tiago: I like that you have an open mind regarding these programs. That’s a great start to anything. There are those that these loans serve very well. It’s the individual scenario that makes that final determination … pro or con.
admin: You’re so right about the possibilities that exist … and the complete denial of options and opportunity. These programs in particular have somehow gained a bad reputation. It’s not the program that is poor … it’s the administration and use of it. In the right situation, they can be very liberating and of great assistance. Used in the wrong way or the wrong situations … they serve the senior poorly. It’s why they have counseling and guidance offered with the program.
Hope all that have questions and opinions continue to write and voice them.
Interesting post. And “open mindness” is one of the crucial points for success. I recommend listening/reading to some Joe Vitale’s creations.
Awesome post. I am really impress with your efforts put in the blog. It’s very useful for us. Thanks