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Top 5 Questions & Answers
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#1: I'd like to ask the question first, "What do you know about Reverse Mortgages?"
“Not very much”
Most of the people I talk with about Reverse Mortgages; this includes Borrowers, Realtors, Financial Advisers & Other Mortgage lenders admit that they don’t know much. If you don’t know much about a Reverse, you’re in good company. It’s important to know where to start in the Reverse Mortgage conversation. Let’s start here.
A Reverse Mortgage is a loan.
A Reverse Mortgage is a loan, that’s the first thing that needs to be understood. A Reverse Mortgage loan, like any other loan is paid off when the last borrower leaves the home or when the loan is refinanced with a traditional “forward” mortgage. It’s just a loan.
#2: "Is a Reverse Mortgage safe?" or; "Will I risk loosing my home?"
A Reverse Mortgage can be safer than a paid off home.
A “free & clear,” paid off home is a cornerstone of the American dream. A paid off home, unfortunately can become the object of a lawsuit. When we close a Reverse Mortgage, the lender files a first position lien for 150% of the appraised value. You don’t owe 150% of the homes value, but that lien is right there on title for anyone to see. Ask your legal adviser what that means. In my opinion, that’s safer.
A Reverse Mortgage can be safer that a home with a forward mortgage.
When you have a forward mortgage, you also have a monthly payment. If something bad happened that kept you from making your monthly payment, you could lose your home, and all your equity in foreclosure. A Reverse Mortgage does not require you to make a monthly mortgage payment. But you are required to pay all your property related charges; such as your homeowners insurance, property taxes, and HOA dues. That looks safer to me.
#3: "Is a Reverse Mortgage expensive?" or; "Is a Reverse Mortgage worth it?"
The expensive part of a Reverse Mortgage is the FHA insurance.
Every FHA insured Reverse Mortgage comes with some “fee-obligations”, and some “fee-options”. The fee-obligations include the most expensive cost, the FHA upfront mortgage insurance. Everybody pays this one, It’s 2% of the appraised value. The fee-options include; the origination fee, the appraisal and most of the title costs. Ask me about your options, then compare my fees with other lenders. I think that’s good business.
You decide if the expense of a Reverse Mortgage is worth it
The better question is, what do you get for your money? The 2% upfront mortgage insurance provides several, valuable features. First, can never owe more on your Reverse Mortgage than your home sells for. Second, your family and heirs are not part of the loan, so they won’t owe anything either. Third, whatever money that is promised to you at closing, will continue to be available regardless of what happens in your local real estate market. I think that’s some good value.
#4: "Who will own my home?" "Same person who owns your home now?"
When I ask people what they know about a Reverse, this is the most common answer I get.
“I’ve heard that you take all the money out then the bank takes your home.” Remember, a Reverse Mortgage is a loan, and a loan is money borrowed against your property. The property is always yours, even if you have a loan against it. You have title to your home, you have to insure and maintain your home, and you have to pay the taxes on your home. That is what every homeowner has to do. The difference between a Reverse Mortgage loan and a forward or traditional mortgage loan is in the terms of the loan.
The terms of a Reverse loan include some options and some obligations.
The Obligations Include:
- Home must be your primary residence.
- You must pay your homeowners insurance.
- You must pay your property taxes. (and HOA if applicable.)
- You must take care of your property.
The optional terms include:
- You are not required to make a monthly Principal & Interest payment.
- You can live in your home as long as you want (as long as you meet your obligations)
- You can use the money in your credit line in any way your choose.
- You can look into refinancing your HECM / Reverse, after 18 months.
- You can sell you home and pay back the loan when you decide to leave.
#5: What are the downsides?" "None, if a Reverse Mortgage is right for you."
A Reverse Mortgage is not right for you if:
- You don’t have a mortgage and you don’t want any type of mortgage on your home.
- You are comfortable with your current mortgage and financial situation. and your home equity is not factored into your retirement plan.
- You intend to give your home to your heirs when you no longer need it.
- You don’t understand the Reverse Mortgage well enough to make a decision.
There are downsides to not knowing if a Reverse is right for you.
- You haven’t compared the benefits of a Reverse with the risks of a mortgage-free home.
- You haven’t run your retirement numbers with your home equity and monthly principal & interest payment included.
- You haven’t considered giving your family some of the money from your home, now, when they might need it.
- Every person I have worked with on a Reverse Mortgage didn’t know enough to make a decision when the process started.
You decide when and if a Reverse Mortgage is right for you. I can help you understand the difference between the downside and upside.