What’s Up With Reverse Mortgages?

Larry O. Doss Friday, May 16, 2008

Not long ago, a GreatWest Real Estate professional lamented, that after being in the business of selling homes to folks for a couple of decades, something was beginning to happen. The agent was noticing more and more of those “kids” they had sold homes to in the early 1980’s were ringing them up and asking, “What’s up with Reverse Mortgages???”

Of course, those “kids” in the early 1980s, are now approaching retirement age!

Until recent years, most real estate professionals wouldn’t have wished a Reverse Mortgage on anyone—they were simply dreadful!
In the past, they were set up for those who couldn’t really afford to stay in their homes any longer, because of meager available funds in retirement years.

The house then became an asset, which provided monthly payments to the owner, until their death, and then the bank or mortgage company got the house. This would happen if the house was worth a couple of hundred thousand, or so, and even if the owner had managed to live just another few years beyond the origination of the loan. Often the equity value of the home was worth far greater amounts, than that which had been borrowed in monthly stipends.

The “old” Reverse Mortgages completely shut out any thought of leaving the home to family or other heirs.

MAJOR CHANGES—TO REVERSE MORTGAGES

However, a really neat thing has happened. There has been a restructuring of the whole Reverse Mortgage Industry, and amazing things have emanated from the dramatic changes.

There are a number of options, which can occur with a Reverse Mortgage—and always there is the opportunity for Equity Buildup and ownership of that equity by either you or your heirs.

For example, let’s pretend the following: You and/or your spouse are approximately 62 years old, and you wish to retire. You own a home that is about 75% paid for. Social Security would pay you a certain amount, and with money you’ve tucked away in a 401K or some other retirement account, you could make your bills, and be ok! You may not get to travel much, or have a very grand retirement, but you would make it!

On the other hand, you have a good-sized equity in your home, which still has a house payment due on it each month.

With a Reverse Mortgage, your monthly house payment (other than taxes and insurance), would immediately stop.

The equity in your home would become an equity line—generally up to the amount of about half of the existing equity value at the time of the origination of your new Reverse Mortgage.

Payments to you from this Reverse Mortgage can come in several forms depending on how the loan has been structured. For example, there could be a combination of a nice sized cash amount up front, and set payments to you each month. Or, you could simply use the Reverse Mortgage for periodic withdrawals yourself and use the available funds as you would an Equity Line Mortgage.

Reverse Mortgages are helping older Americans across the country achieve greater financial security. And enjoy their retirement years to the fullest. Imagine having the income you need to remain living comfortably in your home in retirement—and at the same time make much needed repairs or renovations, afford quality home healthcare, or even vacation with family or friends. Thousands of older Americans have done that thanks to the reverse mortgage, a unique financial security tool that gives older Americans the freedom and peace of mind to fully enjoy the retirement years.

A reverse mortgage is a loan that allows seniors to use the equity they’ve accumulated in their homes over the years to improve their quality of life and knock down the financial barriers to independent living. By converting equity into income, a reverse mortgage is a way to stay in your home and receive cash to use for any purpose—whether it’s day-to day-living expenses, home remodeling or repair, paying off existing debt, earning a college degree, or traveling the world. Best of all YOU retain the title and you remain living in your home.

Homeowners who are 62 years and older can qualify and may be eligible even if there is an existing first or second mortgage. There is no income qualification. The size of the reverse mortgage granted depends upon the applicant’s age, the type of reverse mortgage sought, the home’s value, and interest rates. For as long as the reverse mortgage is outstanding, no monthly mortgage payments are required.

The loan matures when the borrower no longer occupies the home as a primary residence. This typically occurs upon the sale of the home, or if the owner permanently moves or passes away.
“This ingenious product allows you to convert your home equity into cold cash…”

---BusinessWeek On-line—4/5/01

Currently there are three reverse mortgage products available*:
The government-insured HUD/FHA Home Equity Conversion Mortgage Program (HECM), the Home Keeper product by Fannie Mae, and The Financial Freedom, Cash Account plan, The Cash Account plan may provide increased benefit for higher valued property.

Reverse mortgages can be a big part of helping even more people meet the challenges that often comes from staying in their homes and living independently.

The Opposite of a Traditional Mortgage…A Reverse Mortgage pays you money!

Taking a loan to buy a home means borrowing a large sum from a bank and paying down that debt to increase equity and wealth in the home. With a reverse mortgage, the opposite is true. Instead of making payments, a reverse mortgage borrower uses equity to gain income. Throughout the life of the loan, the balance gets larger while the equity gets smaller.

Reverse Mortgage costs…

Almost all costs of a reverse mortgage can be financed from the proceeds of the loan and include:

· Origination fee
· Closing costs
· Servicing fee
· Mortgage insurance premium

And benefits:

· Borrower retains ownership and occupancy of home
· Easy access to equity built in home
· Tax-free equity release
· No monthly mortgage payments
· The ability to access equity built in the home since its purchase
· Lender has no claim on borrower’s income or assets other than the value of the home

There is excellent information regarding Reverse Mortgages available on the AARP website at:

http://www.aarp.org

For the rest of our “not so aged” clientele—it’s important to know that your home is an important part of your investment portfolio. Knowing about Reverse Mortgages empowers you to consider even more retirement options than you realized.

Remember, a Reverse Mortgage can be used on any home you are living in at the time the loan is originated!

Of course, should you wish to sell your home and move up, or even downscale for retirement, please call a GreatWest GMAC professional, and allow us to explore marketing your home with you. . . and don’t forget to recommend us to your friends, and your family. We are interested in having them add REAL ESTATE to their portfolio.


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Based on information from the Humboldt Association of REALTORS®, as of 01/21/2022. All data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be verified by broker or MLS for accuracy. All information should be independently reviewed and verified of accuracy. Properties may or may not be listed by the office/agent presenting the information. Copyright ©2020 Humboldt Association of Realtors®. All rights reserved.