Todays Reverse Mortgage- Is It Right for You
Originally Posted 4/15/22
I have a vague memory of hearing things in the news and among mortgage industry leaders that reverse mortgages were the worst type of mortgage, and I heard they took advantage of the elderly and stole their homes. Since then, I have enjoyed sitting at the table with many retired couples and working through their reverse mortgage application or loan documentation. I now better understand the benefits and pitfalls of a reverse mortgage.
Not being a mortgage professional, I wanted to find a few reputable sources of information to help with this post. The first is an online article from Lending Tree, “ Understanding Reverse Mortgage Pros and Cons.” Denny Ceizyk writes the article beautifully, outlining everything you need to know about reverse mortgages.
What is a reverse mortgage? A reverse mortgage is a home loan for people over 62 who own their homes. The Loan uses the equity in the house to provide payments to the owners for as long as they live in the home. That's a quick explanation. There are more details to consider, and for that, I am going to go to Ceizyk’s article from Lending Tree. Cieyzk’s definition outlines the basic understanding of what a reverse mortgage is.
“A reverse mortgage is a special type of home loan that allows older homeowners with significant equity to borrow against their home’s value without having to make a monthly payment. With a standard home loan (also called a “forward” mortgage), your loan balance is reduced with each monthly payment and your equity increases. The opposite happens with a reverse mortgage because your loan balance grows and your equity shrinks.
Although some lenders offer their own reverse mortgage products, most reverse mortgages are issued as Home Equity Conversion Mortgages or HECMs. HECMs are the only reverse mortgage the Federal Housing Administration (FHA) insures. For this article, we’ll cover HECM borrowing guidelines and loan features.” As I mentioned at the beginning of this post, there were terrible things or badly written reverse mortgages. Check out more information about reverse mortgages in this 2018 Forbes.com article, “A Brief History of Reverse Mortgages in the United States.” A great breakdown of the historical and present-day reverse mortgages. They aren’t what they started as, and that's a good thing.
Let's now get into the pros and cons of reverse mortgages. After all, this is still a loan against your property. To consider this an option, we must get a good overview of the positive and negative attributes. Let's go back to the Lending Tree article, and I will do a quick bullet-point outline of his points. For more detail, I encourage you again to read the original article.
Pros:
You Can Stay in Your Home Longer
You Can Add to Your Retirement Income
You Can Pay Off Debt
You Can Leave other Retirement Accounts Alone
You’ll Have More Financial Freedom
Your Reversed Income is not taxed
You Don’t Have to Meet Debt-to-Income Ratios
Your Spouse Can Stay in the Home After You Pass Away or Move Out
Cons:
You’re Homes Equity Will Shrink
You’ll Pay High Up-Front Fees
You May Be Disqualified from Other Income Benefits
You’ll Reduce Your Heir's Inheritance
You Might Lose Your Home to Foreclosure
You Can’t Use a Reverse Mortgage for Investment or a Vacation Home
You Won't Get a Tax Benefit While the Loan is In Place
Like any loan, you must do your research. It may or may not be what's best for you. However, if you decide it is the right choice, I would love to participate in your reverse mortgage journey, from the application process to the loan document signing. The type of Notary you need for this singing is specific. It requires someone to be patient, has excellent attention to detail, and be able to understand the documents to help you better understand what you are signing. For that, I’m your girl. Whether you are the signer or the mortgage lender, you can contact me here or at 559-212-4706. Always willing to be of service to my community.
Jennifer Cooper
JKC Mobile Notary
