If you are over 62 years of age or older and you are looking for things on the Internet, you are going to see the smiling, happy couple (on the left above) all the time. Or if not these two, some other ecstatically happy couple laughing away because they just got a reverse mortgage, and now they are living happily-ever-after. All their cares and worries are gone. They are riding off in the sunset laughing and giggling. But, is that really the way it is?
I don’t know about you, but not only am I REALLY tired of seeing them grinning up at me all the time, I just don’t believe them. I know they are supposed to give you a good feeling about reverse mortgages, but it seems fake. Especially with the occasional news article about someone losing their home connected to a reverse mortgage.
The question is, “Which picture is correct?”
In my opinion it’s the picture on the Right. These people are not unhappy. They are serious, thoughtful, people who know that life can be enjoyable if you make good, sensible decisions and prepare for your aging. You see, they understand that financial products — like mortgages, insurance, investments, home purchase, savings plans, and retirement accounts — are SERIOUS BUSINESS. Sure they want an enjoyable life, but they know NO ONE THING will provide that for them. They know that it’s the COMBINATION OF GOOD DECISIONS and planning brings an enjoyable lifestyle as they Age-in-Place.
How do the pictures relate to reverse mortgages?
Seeing all these exaggerated pictures of overly happy people associated with a serious financial product over and over again, coupled with old actors/politicians on Television preaching like TV evangelists about reverse mortgages, makes you believe that something is really wrong. That’s where the problem is: This advertising is doing real harm to folks who are 62+ because it is turning away some who would really benefit from a reverse mortgage. The Home Equity Conversion Mortgage (HECM), commonly called Reverse Mortgage, is a financial tool that hundreds of thousands of people have used to make their life better, but only if used properly.
How can a HECM reverse mortgage hurt you?
A paper-cut is the only hurt you can get from the reverse mortgage. That’s right, because it is just a contract on paper. It is not the contract that hurts you, it is the person who is advising you about the reverse mortgage that hurts you. In every case that I have seen where someone was hurt by a reverse mortgage, it was because the “sales person” either left out information or misled them about the loan. The most serious of these was when younger spouses were taken off title to their homes. A responsible, honest loan officer would not recommend that be done because the spouse could be left homeless. Another major problem is when homeowners were not told that they must be able to pay their property taxes and insurance for the rest of their lives. Another less egregious situation is when the “phone salesperson” on the 800 number tells the homeowner that they need to take all their money up front, but they really only need part of the money. This gets a big commission for the “phone Salesperson”, but eats up the equity of the home much faster than needed.
How can a reverse mortgage help you?
A reverse mortgage is not free money. Yes the proceeds are tax free, generally, but it’s a loan and must be paid back eventually. The idea behind this loan is that the homeowner can use some of the equity of their home and still live in the home, but have no monthly payment, giving the senior the ability to live in their home for the rest of their life with no payments other than the taxes, insurance and any maintenance needed, which they would have even if the home were owned free and clear. The way this is accomplished is that the monthly interest due is added to the loan each month. Yes, the loan gets a little bigger each month, but it is calculated to never get bigger than the value of the home. If there is an unexpected down-turn in the real estate market, the FHA insurance would cover any shortage.
There are many uses for the HECM reverse mortgage. It can be used to buy a home, get money for home care, used to insure against downturns in the stock market, to adapt your home for mobility challenges, to extend the distributions of your retirement accounts, to help the family in hard times, as a line of credit for your small business, and more. Click on each item for more information.
There is a Unique Feature of a reverse mortgage that allows you to build cash for later in retirement.
There is two things about a reverse mortgages that most people don’t know:
- You can make payments into a reverse mortgage and use it just like a conventional mortgage.
- You can have a Line of Credit with a HUD mandated “growth rate” that you can use to build access to cash for later. The amount available in your Line of Credit will grow, compounded, at a rate of 1.25% more than the current interest on the loan.
There are homeowners who can comfortably make the payments on their mortgages, but decide to refinance with a reverse mortgage to take advantage of this financial tool. Click Here to see an example of refinancing a $300,000 loan, making monthly payments the same as with the conventional loan, and paying down the loan balance to $206,000 while building access to $370,000 cash for use in the future.
Next time you see that smiling happy couple, giggling about their reverse mortgage, think of me – your smiling happy, but serious, Aging In Place, Loan Officer.
I will be more than happy to counsel you on all the uses for a Home Equity Conversion Mortgage, or reverse mortgage. I want you to be smiling and happy, but, more importantly, I want you to be sure to have a comfortable, safe place to live for the rest of your life.