There is a lot of talk about reverse mortgages. What is true and what is false about this program. In this Blog I will try to clear up some common myths and help you, the reader, to have a solid understanding.
A reverse mortgage is a FHA insured, government regulated home loan. Only seniors 62 years old and older qualify. Reverse loans differ from regular home finance in the following ways;
- There is no credit requirements
- There is no income needed
- There is no asset requirements
- You never make a monthly payment for the life of the loan
The loan is based on two factors;
- Your age
- The value of your home
What a reverse mortgages allows you to live the rest of your life with out ever making another house payment. Sounds too good to be true? Well it isn't. This mortgage is a financial tool and can be a powerful way to reduce your monthly expenses. Here are some points to ponder.
- Reverse Mortgages are taken by thousands of seniors every year. That means that someone you know, a friend, a neighbor, or family member has probably taken advantage of this wonderful opportunity?
- Reverse Mortgages allow you to create a safe way to take care of yourself (and your spouse) while having the financial independence you've worked for all of your life? No matter what happens in the future, your home will NOT be at risk.
- A Reverse Mortgage can give you the liquid cash when you need it to maintain your current lifestyle, or for you to be able to have a security blanket so you can cope with the rising costs of everyday living?
- Often a Reverse Mortgage is less expensive than a traditional home mortgage or home equity loan?
- Many seniors who take a home equity loan have difficulty making the monthly payments within the first 5 years? AND, many of those eventually take a Reverse Mortgage to pay off the equity loan to relieve the financial pressure.
- The federal government regulates Reverse Mortgages? This means that the amount of money available to you, and the costs you pay are primarily the same with every lender in the United States.
- Smaller, independent lenders who specialize in working with seniors provide the majority of Reverse Mortgages across the United States?
- At first, many people are afraid of Reverse Mortgages until they find out exactly how they work? When all of the "myths" are dispelled and they see how they can benefit from a Reverse Mortgage, they are no longer afraid.
Some of the myths of a reverse mortgage are
If I have a Reverse Mortgage I can lose my home and all of my remaining equity to the government or the bank.
False: A Reverse Mortgage is only a lien on your home. You still own your home. When you leave the home, the loan balance is repaid in full with the remaining equity passing to you or your heirs.
A Reverse Mortgage will use up all of the equity in my home and there will be nothing left for my heirs.
False: Because you still own your home, and because it will continue to appreciate in value, it is very difficult to use up all of your equity. In fact, in many cases, depending on how much money you use, the amount of equity you have may increase.
Selling my home is better than doing a Reverse Mortgage.
False: If you sell your home, you lose one of the largest and most secure investments you probably have. You would lose 6-10% of your home's equity in sales costs alone. After selling, you would most likely have to pay rent or some other type of monthly payment that would eat away at your savings. For most seniors, moving from their home is physically and emotionally difficult.
I should shop around for the best interest rate on my Reverse Mortgage.
False: The federal government determines the interest rate for HUD Reverse Mortgages. This means that no matter where you go for your Reverse Mortgage, the rate will be exactly the same. You want to work with a lender that is helpful, knowledgeable, professional and that doesn't try to pressure you.
I already have a mortgage, so I won't qualify for a Reverse Mortgage.
False: You can use the Reverse Mortgage to pay off the balance of your current mortgage or equity loan. By doing so, you will "free up" the money you used to use for monthly payments on the old loan.
I have bad credit, so I won't qualify for a Reverse Mortgage.
False: There are no credit, income asset or health requirements to qualify for a Reverse Mortgage. If you are 62 or older and you own a home - you qualify.
Reverse Mortgages are expensive.
False: Even though a Reverse Mortgage has up-front costs that are folded into the loan, there are NEVER any monthly payments. Compared to other traditional types of home loans that have monthly payments, a Reverse Mortgage is much more economical - especially for seniors.
I have to fix up my house to qualify for a Reverse Mortgage.
False: Your home doesn't have to be in perfect shape, however if there are minor repairs that are required by the lender, they can be done after the closing in most cases.
A traditional mortgage loan with monthly payments costs less and is always better than a Reverse Mortgage.
False: Even though a traditional loan with monthly payments might work well in some cases, in general a traditional loan will cost more. In fact, over a 10 year period, a traditional loan of $75,000 will cost you an average of $30,000 more than a Reverse Mortgage. In addition, the traditional loan has the risk of foreclosure, which a Reverse Mortgage does not.
We are not eligible for a Reverse Mortgage because my spouse is not 62 years old yet.
False: While it is true that both borrowers must be 62 years or older, if one spouse is not 62, there are still strategies that can be employed that will enable you to obtain a Reverse Mortgage. These strategies can be very safe and practical.
I have found that for some seniors a reverse mortgage can fit into their long and short term financial goal very well. The interest rates on a reverse mortgage can be lower then the regular rate some people are paying now. Whether a reverse mortgage is in your future or not, knowing you options is the best way to make an informed and intelligent decision. For more information or if you have specific question feel free to contact me at (734) 669-5860 or e-mail me at dave@annarborfinancing.com or visit my web site at http://www.annarborfinancing.com/
David Crisp
Senior Loan Officer
Ann Arbor Mortgage Company
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