Are You Still Unsure About Reverse Mortgages?

By
Real Estate Agent with Ivy League Mortgage Philadelphia, Pa

I still see and hear so many misconceptions about Reverse Mortgages. Education is the key to making a solid decision. If you or any senior that you know is considering a Reverse Mortgage....get the facts. They can be a lifesaver to some.

My husband just helped a couple who owned a first and a second home and had equity in excess of $700,000, yet they were in foreclosure on their primary, because due to circumstances, they were unable to make the payments. These sweet folks were desperate. They never should have had that stress!

My husband was able to do a Reverse Mortgage on both properties and now they have NO PAYMENTS! They went from having 2 first mortgages and 2 second mortgages to being debt free. And they received $75,000 cash at closing. It was truly heartwarming to help these people.

Below is some of a presentation that John and I put together.

What Is a Reverse Mortgage?  What About Reverse Mortgages?

  • A Reverse Mortgage is a non-recourse loan that allows homeowners age 62 or better to convert home equity into cash.

So what does non-recourse mean?

  • The homeowner or their heirs will never be asked to pay back more than the value of the home, even if the debt has grown to be greater than the value. This is not the case in traditional loans and equity lines.

Why would a senior consider a Reverse Mortgage?

  • Seniors will never have to leave their home
  • No income, asset or credit qualifications
  • No monthly mortgages payments are required
  • No repayment of loan until the last borrower permanently moves out
  • Proceeds are tax-free Interest may be deductible upon loan repayment (Please consult your tax advisor for details)

How much cash can I get?

  • Loan proceeds available to the borrower are based on three main factors:
  1. Age of homeowners
  2. Value and location of home
  3. Current interest rates
  • Loan is repaid at permanent move out, and repayment never exceeds value of home. The amount repaid is principal, accrued interest, and service fees.

So, now I know how much I can get.  How can I take it?

  • Lump Sum
  • Monthly Payment      
  • Term Payment /Tenure (or lifetime) Payment (contrary to popular belief, this is really a lifetime payment, not until the money OR equity runs out)
  • Equity Line - Interest is not charged on what you don't use! Please note that this is what is called a "growing" equity line. The money available on this line of credit will increase automatically, by the same rate that is being charged on the principal balance. OR A CUSTOMIZED COMBINATION CAN BE ARRANGED BASED ON INDIVIDUAL CIRCUMSTANCES

Are there any tax implications?

  • Proceeds from a reverse are tax free and not considered income. (Please consult your tax advisor)
  • Beware: If a senior is dependent on the home mortgage interest deduction to keep themselves in a particular tax bracket, they should consult with their tax professional before getting reverse mortgage.

Some of the uses for Reverses Mortgages

  • Health Care Costs
  • Repay Existing Mortgages
  • Reduce Burden on Children
  • Gifts
  • Home Repair/Improvement
  • Purchase a property
  • Reverse mortgages allowed on second homes

What about listing a property that is encumbered by a reverse mortgage?

Reverse Mortgages must be paid back within 12 months of the last borrower passing away. It is important to keep this in mind when coming up with your proposal to market the property. Careful consideration should made to the time limitation you may have to sell the property. It is also important to remember that the clock starts ticking when the last borrower passes away, NOT when the probate process is finalized. This may further reduce the time you have to sell the property.

Current Reverse Mortgage Products:

  • HECM - FHA's version with fixed rate option. Government has passed bill to raise the national lending limit to $417,000 (up to $625,000 in high cost areas) can be used for a purchase
  • HomeKeeper - FNMA's version -Higher interest rates, can be used for purchase, national lending limit of $417,000 and purchase option

 If you have any questions or interest, let me know. My husband, John, specializes in Reverse Mortgages and has been in the mortgage industry for 20 years now. He loves helping the seniors and feels that he has found his niche!

 

 

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Rainer
35,606
Jane Page Thompson
Aiken Properties - Aiken, SC

Great Post!!

Sep 01, 2008 02:54 PM #1
Rainmaker
718,552
Bill C. Merrell
Merrell Institute ~ Appraisal Education Network - Bohemia, NY
Ph.D. - Merrell Institue

Good information

I wish more people knew about this.

All the best.

Happy Labor Day.

Keep on blogging,

Bill 

Sep 01, 2008 02:57 PM #2
Rainmaker
718,552
Bill C. Merrell
Merrell Institute ~ Appraisal Education Network - Bohemia, NY
Ph.D. - Merrell Institue

Good information

I wish more people knew about this.

All the best.

Happy Labor Day.

Keep on blogging,

Bill 

Sep 01, 2008 02:58 PM #3
Rainer
12,022
Victor Montalvo Bilingual Realtor Sí, hablo español
Exit Realty Associates - Austin, TX

This is great information. Here in the Austin area; we don't do to many of these loans because the average person is 27 years old. So, this is good for me to know if I have any seniors that need help. Thanks for sharing and educating me.

Sep 01, 2008 02:59 PM #4
Anonymous
Vance Walden

This is very good information because I only thought that a couple or person could have one reverse mortgage at a time.  I guess I am wrong.  Can you pass along the name of the lender that was able to approve this transaction.  I am a loan officer in the Tacoma Wa area might just look for more opportunities along these lines.  Thx again for sharing great information.   

Sep 04, 2008 12:07 PM #5
Rainmaker
6,150,862
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Thanks for the post.  I wish we had a way to identify the seniors that are having difficulties with their budgets.

Roy Kelley

Sep 04, 2008 12:28 PM #6
Rainer
52,630
Sharon Young
Ivy League Mortgage Philadelphia, Pa - Southampton, PA

Everyone ... thanks for the comments! Education is key. A RM may not be the right choice in some situations, but *can* be a lifesaver. With the RM still being fairly new, it is important to have a mortgage professional that knows what they are doing!

Vance (and anyone else interested) The company is Ivy League Mortgage and my husband is the LO. His name is John Young, 215-284-8237 / jyoung@ivyleaguemortgage.com

Sep 04, 2008 01:20 PM #7
Rainmaker
48,665
Brenda Tressler
Crye-Leike Realtors - Clarksville, TN

turtleGreat post with good information... Thanks for sharing your story. Best wishes to all Brenda :)

Sep 04, 2008 02:59 PM #8
Anonymous
Mike Hammar Gorham Savings Bank - Maine

First of all, your posting is misleading in a few areas:

Current Reverse Mortgage Products:

  • HECM - FHA's version with fixed rate option. Government has passed bill to raise the national lending limit to $417,000 (up to $625,000 in high cost areas) can be used for a purchase
  • HomeKeeper - FNMA's version -Higher interest rates, can be used for purchase, national lending limit of $417,000 and purchase option

HECM: The government has NOT yet finalized the loan limit at $147,000 (unless you are a legislator who assisted in writing the language

HomeKeeper from Fannie mae will be eliminated due to the HECM soon will be available to PURCHASE a home.

 Also when you state:

  • Loan is repaid at permanent move out, and repayment never exceeds value of home. The amount repaid is principal, accrued interest, and service fees.
  • Should the FAMILY/ESTATE/HEIRS decide to KEEP the property by paying off the loan, there is NO assurance (unless the lender agrees) that the property will be offered for sale to them for LESS than the LOAN AMOUNT.

    Thank you,

    Mike

     

    Sep 15, 2008 01:52 AM #9
    Anonymous
    Mike Hammar

    So even I erred when I typed $147,000 loan limit --- when it should have been $417,000. I apologize, but I'm certain my typo will generate comments.

    "Fat fingers..."

     

    Thank you,

    Mike

    Sep 15, 2008 01:55 AM #10
    Anonymous
    RickM

    Be careful, second homes are not on the list here, so I believe your message is that the owner occupied property provided enough cash to pay off a first and second on both owner occ and second home was your point.  Someone is suggesting that they secured a reverse mortgage on a second home and that's probably not the case, you can't get 2 FHA based loans with the same borrower this way.

    Oct 27, 2008 06:58 AM #11
    Rainer
    52,630
    Sharon Young
    Ivy League Mortgage Philadelphia, Pa - Southampton, PA

    To the comment above. Thanks for the comment. They were two seperate loans. Not a first and second on one property. Remember, NOT ALL Reverse Mortgages are HECM's. These were propriatary loans. The rate was a slight bit higher, but you can do as many as needed. That's the beauty of the Reverse Mortgage product. The borrower had TWO properties saved! So... you CAN get a reverse on a second home.

    Oct 27, 2008 07:09 AM #12
    Rainmaker
    160,778
    Retired Notworking
    Tallahassee, FL

    This appears to be a good overview on reverse mortgages and the story of the couple who saved both their homes is heartwarming. I'm still not sure exactly how it works and will try to find some other examples of homeowners who benefited vs. those who didn't. 

    If a client selected a monthly payment, it's not clear how the bank could keep paying even after the equity ran out. What if someone lived to be 100 and the bank only expected them to live until 80?

    Jan 10, 2009 02:46 AM #13
    Rainmaker
    1,990,604
    Michael J. Perry
    KW Elite - Lancaster, PA
    Lancaster, PA Relo Specialist

    I tell most people that their Retirement Planning has to include having at least one piece of Real Estate being “ Free and Clear” by their last work day  !!!!!

    Jan 04, 2021 05:16 AM #14
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