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Reverse Mortgage News for Seniors
So, Whats Your Problem with Reverse Mortgages? Industry Leader Has Answers
A leader in the reverse mortgage industry debunks myths and criticisms of the government program for older Americans
By Michael Branson, All Reverse Mortgage Company
But whats so wrong with this federally-insured Home Equity Conversion Mortgage (HECM) program? Is it really as bad as some media outlets would have you believe?
The short answer is no, but dont just take our word for it - well prove it, too.
For starters, reverse mortgages are becoming more common among borrowers of all ages, with nearly half of homeowners considering a reverse mortgage under the age of 70, according to a 2012 MetLife Mature Market Institute study on the changing attitudes and motives of reverse mortgage borrowers.
The study revealed that homeowners looking into getting a reverse mortgage are interested for a variety of reasons, including reducing household debt, enhance lifestyle, and plan for the future.
Do you have a problem with reverse mortgages? If so, lets take a look at a few issues commonly raised about this type of loanmaybe we can debunk some myths for you.
Common Reverse Mortgage Myths
Claim: Reverse mortgages are a last resort.
Response: Not necessarily. Reverse mortgages have often been considered a loan of last resort for borrowers who simply have no other options. And while they can be a great choice for individuals who are cash poor, house rich, this loan doesnt have to be kept as a last-ditch effort to stay afloat.
Using home equity as more than a last resort can help to keep cash shortfalls from becoming big problems, says MetLife in the study we mentioned above. For example, homeowners may choose to use these funds to provide more choice and control in their lives; pay for home repairs, tax bills, and other choices which allow them to stay in their homes. In some situations, a reverse mortgage may stabilize a difficult financial situation such as forestall a foreclosure and allow time for the homeowners to find more effective solutions to their cash flow problems.
Claim: The bank takes your home.
Response: False! When you take out a reverse mortgage, you retain the title of your home. You are not transferring ownership to the bank; rather, the bank is allowing you to tap into your homes equity in the form of a loan. The loan is generally repaid when borrowers sell their homes, but the bank does not automatically take your home unless you choose that method to repay your mortgage.
Claim: If you get a reverse mortgage, you wont qualify for any benefits programs.
Response: Thats not entirely true. Reverse mortgage borrowers will still qualify for Medicare and Social Securityprograms that are available through age and entitlement qualifications, not on a needs basis.
Needs-based programs such as Medicaid and Supplemental Security Income (SSI) may be affected by reverse mortgage proceeds, however, because these programs consider an individuals assets when determining if they qualify to receive benefits. These considerations vary state by state, so if you currently are a Medicaid or SSI beneficiary, check your states requirements to find out if a reverse mortgage would affect your eligibility.
Problem #1: Reverse Mortgages are Too Expensive
One common warning financial planners may give on the topic of reverse mortgages is that theyre too expensive.
Fortunately, they dont have to be.
There are fees associated with taking out a reverse mortgage, yes. But theres also a federally-insured productthe HECM Saverwhich substantially reduces the amount it costs to originate a loan.
The traditional reverse mortgage program (the HECM Standard) requires borrowers to pay an upfront Mortgage Insurance Premium (MIP) of 2% of the loans value, along with an annual premium of 1.25% of the loan balance.
However, the HECM Saver program, for borrowers who dont need or want as large of a loan, charges a .01% upfront MIP, along with the yearly premium of 1.25% of the loan balance. Thats right, just .01%a fraction of the HECM Standard, which can represent significant cost savings.
Another thing to consider is that many of the origination fees can be paid for with reverse mortgage proceeds, so you dont necessarily have to pay all of the costs out-of-pocket. Depending on secondary market conditions you may even find some No-Cost options.
Problem #2: Ill Drain All My Equity
Some detractors have used an argument that reverse mortgages use up all of a homeowners equity. While this can occur in some cases, it doesnt have to happen.
Reverse mortgage borrowers can control how much equity they use. As we mentioned above, if you only want or need a smaller loan, a HECM Saver could be the right option for you. Not only would you benefit from smaller upfront fees, but it automatically limits the amount of equity you can draw down.
Another option is for borrowers to make interest payments on their loan to preserve the amount of equity in their homes. This is a 100% voluntary option, meaning you dont HAVE to make interest payments during the loans term. But if youre concerned about how much interest is being added to your loan, this could help you manage the size of your mortgage.
All Reverse Mortgage has developed the first ever amortization calculator that can show you how to keep your reverse mortgage balance from rising by applying a monthly payment option.
An added perk in paying interest on your loan is that you can deduct it from your taxes, so if youre interested in pursuing this option, talk to your tax advisor.
Problem #3: Ill be Stuck in My Home
Reverse mortgages allow you to stay in your homethey dont trap you there. Borrowers are able to repay their loans at any time if they so choose. And if they need to leave their house to enter any sort of care facility, they can, although they will be required to repay the mortgage (usually by selling the home).
For borrowers who are nervous to pay the upfront fees of a reverse mortgage if theyre not sure how long theyll be able to remain in their home, consider a HECM Saver.
If your homes value has gone up significantly after you took out a reverse mortgage, and you think the amount of equity youve been able to access is too small, you can even refinance your reverse mortgage for a higher loan amount, or to take advantage of better interest rates.
So, Whats Your Problem with Reverse Mortgages?
Now that weve debunked some myths and cleared up some problems, do you have any more questions about reverse mortgages? If you do, well be happy to help.
Note: The author, Michael Branson, is CEO of All Reverse Mortgage Company, and an occasional contributor to SeniorJournal.com. His company is a regular advertiser in SeniorJournal.com.
This material was originally posted on his blog: Reverse Mortgage Problems by Mike Branson.
His latest posting is "Variable Rate Reverse Mortgages Explained."
Go to the Reverse Mortgage Blog for updates and comments.
Branson can be reached at 800-565-1722.
Links to More Information
● Frequently Asked Questions About HUD's Reverse Mortgages
● Federal Trade Commission: Get the Facts Before Cashing in on Your Homes Equity
●
National Reverse Mortgage Lenders Association
Information for consumers interested in learning more about reverse
mortgages.
● National Reverse Mortgage Lenders Association Q&A
●
AARP on Reverse Mortgages
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