Reverse Mortgages Are No Longer a “Last Resort”
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Michael G. Branson, CEO of All Reverse Mortgage, Inc., and moderator of ARLO™, has 45 years of experience in the mortgage banking industry. He has devoted the past 20 years to reverse mortgages exclusively. (License: NMLS# 14040) |
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All Reverse Mortgage's editing process includes rigorous fact-checking led by industry experts to ensure all content is accurate and current. This article has been reviewed, edited, and fact-checked by Cliff Auerswald, President and co-creator of ARLO™. (License: NMLS# 14041) |
Michael G. Branson
Cliff AuerswaldI’ve been told to wait on taking a reverse mortgage as a last resort. Why?
Let me start by saying that we are a reverse mortgage lender who will be the first to tell you that reverse mortgages are not for everyone. But that’s true of any financial product, and no loan is perfect for everyone.
A reverse mortgage can be a great financial tool when used by the right borrower and for the right purposes. You need to assess your circumstances to see if this is right based on your goals and circumstances.
Is leaving an inheritance important to you?
For example, do you have heirs, and is your primary concern to leave an inheritance, or do you need some additional income to live now? Can your heirs help you if you would instead not tap into your equity to ensure you can leave it to them?
Will the reverse mortgage adequately improve your quality of life, or will you still be too stretched to live comfortably, even after you get a reverse mortgage?
Can you afford future property charges?
The reverse mortgage can be a last resort for some folks to stay out of foreclosure. However, if you still cannot afford the taxes, insurance, and maintenance on the home and live comfortably, then selling and downsizing might be a better alternative for you.
It is a default on the loan if you do not keep your taxes and insurance on the property current, so by having the reverse mortgage, these would no longer be issues for you. A reverse mortgage is not the right choice for you.
On the other hand, if the reverse mortgage allows you to live in your home comfortably, pay any expenses easily, and live life the way you want, then it might be a good loan for your circumstances.
The loan never has a prepayment penalty, and you still own your property just as you would with any other loan, so if you decide to sell later and pay the loan off, you can do so. Remember that as long as you can live in the home and not make payments, the interest will accrue on any funds you borrow.
Still, you receive an amortization schedule from the lender from the very start, so you are kept informed of what you would owe at any time from the date of application (not counting any additional draws you might make).
Line of Credit offers peace of mind.
Borrowers who take a reverse mortgage now and have a line of credit available to them that they do not use do not accrue interest on any funds they have not borrowed, and the line of credit grows on the unused portion annually.
In other words, the current growth rate is about 4%, so if your line is $100,000 and you are not using the money, it stays in the line. No interest accrues on the unused portion, but at the end of the year, the line grows by about 4%, and your new line of credit available would be approximately $104,000.
Waiting doesn’t always make sense for borrowers because loan programs can change, and available amounts could be reduced in the future. Borrowers’ ages, interest rates, and property values affect the amount available to borrowers.
Consider the total costs of the loan.
If rates go up just 1%, that will substantially drop the amount available to borrowers, so waiting could be risky, especially for those looking to maximize benefits.
Finally, about the closing costs. Some costs are out of the lenders’ control, while lenders can control others. There are also times when the amount that the loans can be sold for in the secondary market may allow lenders to offer to charge less or even pay some of the borrower’s fees.
I would tell you to shop around and get at least 3 quotes from companies like ours that are Better Business Bureau A+ rated companies. Remember, bigger is not always better! Some companies want to tout their size, but they must carry huge expenses and expect you to pay those costs.
Just remember, big companies and famous spokespersons are significant expenses. If it’s the same government-insured loan but at a higher cost just for the privilege of going through that company, then it helps them, not you.
This loan is all about you. Ensure you get the best deal and program for your circumstances. Don’t be afraid to ask if you’re unsure about something. We’re here to help you.
Top FAQs
Is a reverse mortgage a last resort?
A reverse mortgage should not be a last resort and should be a tool used for retirement planning. However, for many homeowners, it sometimes ends up being just that. If you have exhausted all options to get relief on your monthly expenses and reserve funds are dwindling, a reverse mortgage is your last resort to stay in your home to avoid having to sell and downsize if you do not want to do so.
Why would someone wait until they’re desperate to take a reverse mortgage?
Homeowners sometimes wait until they’re desperate to consider a reverse mortgage for several reasons. However, the most common reason in our experience is the individual’s negative opinion about reverse mortgages due to wrong information they have heard or read about past versions. Before the reverse mortgage became a Federally insured program in the late 1980s, other iterations of reverse mortgages from banks were not good products for consumers.
What happens when you reach the end of a reverse mortgage?
The only way to reach the end of a reverse mortgage is for the homeowner to reach a maturity event. Maturity events include the last surviving borrower passing away, leaving the property permanently, or failing to pay the home’s taxes and/or insurance. When a reverse mortgage reaches maturity, the loan becomes due and payable. The homeowner or the heir(s) can sell the home to pay the balance or use another loan or other funds to pay off the loan balance.
Do reverse mortgages have any hidden risks?
Is it possible to outlive a reverse mortgage?
Have a Question About Reverse Mortgages?
July 2nd, 2014
July 2nd, 2014