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Reverse Mortgages turn 50yrs old. Why no party?

What… no party?

This year the Reverse Mortgage celebrates its 50th birthday, but it is unlikely there will be any public celebrations on its behalf and that’s a real shame.

What is a reverse mortgage?

A reverse mortgage also known as a HECM (Home Equity Conversion Mortgage) plain and simple is a loan that allows senior homeowners 62 or older to borrow or gain access to a portion of the equity in their home.  When the homeowner passes away or moves his/her estate sells the property the loan is repaid.  Any remaining equity goes back to the borrower or his/her estate.  There are no income or credit qualifications and during the term of the loan the borrower is not required to make any monthly payments to principal and interest.  Borrowers can choose to receive funds in a lump sum, monthly payments or they can access funds on an as needed basis through a line of credit.

Why the bad press?

Reverse mortgages have long suffered from bad press that in most cases has nothing to do with the reverse mortgage itself.  If a teen steals his parent’s car and totals it we don’t look at the CAR LOAN as the root of the problem but that is exactly how the press treats reverse mortgages.  That is a real shame because many seniors who could really benefit from reverse mortgage financing are afraid of them and they don’t know why other than that they “heard they were bad”.  In a world where everyone has enough cash to write a check for everything mortgages of all kinds are not necessary.  In the world we live in… most of us do not have the resources to pay cash.  Borrowing is a necessity.

Why not just refinance or get a home equity loan?

A traditional mortgage or Home Equity Loan is thought to be less costly but requires borrowers to prove they have sufficient income to manage monthly payments.  Qualifying for a traditional loan can be difficult for many seniors.  All traditional loans also have monthly payments associated with them which ultimately will hurt, rather than help cash flow.  As far as costs are concerned, there are many more lower cost options today such as the HECM Saver, than there were just a few years ago and since rates on Reverse mortgages are often lower than you would see on traditional loans, long-term costs can be much lower.

What makes the Reverse Mortgage unique is not only the lack of a monthly payments but the ease in which seniors can qualify.  Since the Reverse Mortgage does not have monthly payments, borrowers with limited income or with some credit problems, even bankruptcy will still qualify for the HECM program.

What can it be used for?

There are no limits on what a reverse mortgage can be used for, most common uses are:

  • Pay off existing mortgages and other debts to improve cash flow
  • Pay for health care expenses such as in home health care to help seniors remain at home.
  • Pay for needed home renovations and modifications that will allow a senior to more comfortably age in place
  • Purchase a new home or condominium.

The Vast Majority are very happy

Over the last 20 years I have worked with thousands of homeowners and homebuyers with dozens of different programs.  No other program comes anywhere close to making the positive impact on a homeowner’s life than the Reverse Mortgage.  In 2007 AARP published a study showing the vast majority of seniors with reverse mortgages (93%) were happy with them and there have been many improvements to the program since this study was completed.

Seniors, Families, caregivers and professional advisors would be well served to look with an open mind at what this program can do for those they care for and about.   More on this topic in future posts.

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