Galen Elise Call, CRMP. Certified Reverse Mortgage Professional Monterey California

Let us explore three ways that a reverse mortgage can help to transform retirement

Considering A Reverse Mortgage Understand These Important Points First

It is All about Flexibility

The primary benefit that one receives with a reverse mortgage is financial flexibility. It is an excellent way to tap into the equity that has built up in your home over time without having to sell the house. After living in your home for decades, moving is often not desirable; staying in the home is the priority. Unlike a traditional home loan, the payment terms allow for the flexibility of not making monthly mortgage payments! Certainly, you can choose to pay the loan down and if you want to later sell and move, you pay back the mortgage through the sale. There is no prepayment penalty. read more

Considering A Reverse Mortgage? Understand These Important Points First

There are many homeowners on a fixed income once they reach a certain age, however, their expenses are not always fixed costs. Sometimes, there is a large medical expense or the need for a new car or a home repair. In the event that someone needs cash flow, and they are 62 or older one option is called a reverse mortgage.

Those who have equity built up in their home can draw upon this to help with unexpected expenses.  Let’s consider the pros and cons of a reverse mortgage.

The Pros of a Reverse Mortgage
Taking out a reverse mortgage does have several benefits that everyone should know. First, there are no required monthly principal and interest payments although one can make a payment if they so choose.  The available cash flow is not considered income so it is not taxable ( consult with your tax advisor) You remain on the title to your home either as an individual or in Trust.
Next, the borrower can never owe more than the value of the home when the property is sold. This is the non-recourse feature.  If there is equity left in the home when the loan is due and payable it belongs to the borrower or the estate. Finally, the borrower will never have to leave their home with a reverse mortgage if they occupy it as their primary residence, the property taxes, homeowners’ insurance, and other property-related charges are paid and current.

The Cons of a Reverse Mortgage
Not everyone who owns a home will qualify for a reverse mortgage. They need to have enough equity built up in the home before a loan can be executed. Once in place, this is a negatively amortizing loan. Over time the home value will appreciate as the market allows. The loan balance also grows larger over time because the principal and interest payments are deferred. Payment is deferred to a later date when the last borrower no longer occupies the home, then the loan becomes due and payable most often by the sale of the home.

Thinking about the pros and cons carefully can help someone decide if a reverse mortgage is right for them. A reverse mortgage can be an excellent way to take advantage of the equity that is currently locked up in your home.

To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional  (CRMP) for guidance and expertise.

What happens to the Home after the last borrower dies?

The misconceptions about loan repayment were far and wide before reverse mortgages became regulated and federally insured financial tools.

The lender does not get the home, take title to the home, or own the home or its equity in any way.
A homeowner or heir can sell the home ( that has a reverse mortgage ) at any time with no prepayment penalty. The rule of thumb is to not pay off the loan for at least 18 months after settlement. The HECM is a lien like any other mortgage and when the home is sold the mortgage is paid off.

Assume the borrowers are married and the last borrower dies. There are now multiple options for the heirs. And there are two essential questions to consider first: is there any equity left and do we want to keep the home?

If the heir does not want to keep the home, they may:
Sign a deed-in-lieu of foreclosure. This is done when there is no economic value to selling the home: net sale proceeds are zero. This option allows the heir to relinquish the home to the lender. The lender in turn sells the home for market value and the heir does nothing else.

Or the heir can sell the home and receive the net proceeds. This is precisely where the borrower leaves an inheritance to the heir.

If the heir wants to keep the home:
They can obtain what is called a short payoff for 95% of the current home value. This assumes the debt is greater than the home value. This is a non-recourse feature that protects the heir’s interest in a post-death transfer of the property. ( HUG.GOV-HECM servicing when a HECM becomes due and payable as a result of the mortgagor’s death and the property is conveyed by will or operation of law to the mortgagor’s estate or heirs ( including a surviving spouse who is not obligated on the HECM note) that party ( or parties if multiple heirs) may satisfy  the HECM debt by paying the lessor of the mortgage balance or 95% of the current appraised value of the property)

Or the heir can pay off the mortgage balance, typically with a full refinance of the outstanding loan balance.

To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional  (CRMP) for guidance and expertise.

What Will My Children Think?

What will my children or heirs think about a reverse mortgage?  Below are a few questions to consider while you evaluate your interest in a HECM loan.

Do they want to inherit the maximum equity from your home OR do they want you to enjoy the most income possible today?

Do they want you to live at the highest standard of living possible?

Do they want you to maintain your dignity and independence?

Do they want to supplement your income?

Will there be equity left for them too? It just depends… How long will you stay in this house, how long will you live? What is the home value vs loan balance? How important is it to leave this legacy?

If there are children, this conversation comes up often. Invite your children to learn what this loan is and is not and if they have questions ask them to contact your CRMP reverse mortgage professional. Too often information is miscommunicated, and everyone is confused based on another homeowner example that may not apply to you. If the child does not want you to do this loan, it begs the questions above. Many families have a similar scenario where the children have their own lives, their own homes, their own income, and only want Mom and Dad to do exactly what Mom and Dad want to do with the home they live in!

If adult children live in your home what then are the options?  For a host of reasons, adult children occupy the family home temporarily or permanently. This may continue if the parent elects to take out a reverse mortgage, until the last borrower dies, moves out, and no longer occupies the home. Other obligations of the loan  ( pay property taxes, homeowners’ insurance, and other property charges) must be met, or the loan could be due and payable.  At the point when the last borrower no longer occupies the home, the loan is due and payable, and the home is usually sold to repay the debt. If there is equity it belongs to the estate.

To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional  (CRMP) for guidance and expertise.

Is a Reverse Mortgage Safe?

Read This Before Signing Your Reverse MortgageYES! FHA guarantees that the borrower can never owe more than the home is worth at the time it is sold.

This is a non-recourse loan!

This is one of the most powerful aspects of a reverse mortgage.  FHA Guarantees that neither the borrower nor the heirs will owe more than the home is worth at the time it is sold.

Over time, the loan balance of a reverse mortgage will rise if you choose not to make a payment. It’s flexible: you can pay down the loan entirely or partially or not all while you occupy the home. The lender only has your property as security for their loan. They have no other way to obtain repayment of the principal, interest, and mortgage insurance fees in the event something happens and your home is not worth enough to pay off all the entire obligation. There is no recourse to the estate. However, when the loan is due and payable and there is EQUITY left in the estate that EQUITY belongs to the estate, not to the lender.

Too good to be true? FHA collects mortgage insurance premiums as part of your closing costs. FHA’s mutual mortgage insurance fund is a pool of funds created for this purpose.

HUD Counseling

HUD participates in regulating the program and the industry to protect you; therefore, all reverse mortgage applicants must complete a HUD Counseling session before application. Seniors are a protected class!

If the borrower is incompetent and there is a Power of Attorney agent, the POA must complete HUD counseling. If there is a Conservator in place that individual must receive HUD counseling on behalf of their client/borrower. There are many requirements of the POA and the Conservator by the lender to mitigate fraud which must be presented at application. Protections for older adults are throughout the process of obtaining a reverse mortgage.

 Education is a critical component to a reverse mortgage: To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional  (CRMP) for guidance and expertise.

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