Reverse mortgages are not new, but they have changed a bit, and have recently been very heavily advertised with familiar TV celebrity spokespersons. Why the sudden interest?
What is a Reverse Mortgage?
The reverse mortgage is a financial product designed specifically for seniors, those aged 62 years or older, and insured by the Federal Housing Administration (FHA). A reverse mortgage is also known as a Home Equity Conversion Mortgage (HECM) loan.
The concept is that seniors in or approaching retirement can tap their home equity to pay off existing mortgages and other debts, to increase retirement income, or to provide cash for home improvements and other investments. The beauty of the reverse mortgage is that the homeowner can access this cash tax-free, and payment-free, without having to sell the home. The reverse mortgage loan does not require monthly payments. Instead, the loan interest is simply added to the mortgage balance each month. The loan is repaid when the homeowner is done with the home, generally following the homeowner’s death.
There is a great deal of peace, as a homeowner, to know that I can live in my home for the rest of my life without ever having to make another mortgage payment. Beyond that, I also have access to a portion of my equity, without selling or putting my home at risk, and without incurring another mandatory monthly payment.
The Homeowner Still Owns the Home
A common misconception is that the bank owns the home after getting a reverse mortgage. Not true!
The homeowner still owns the home, and remains free to sell it at will, paying off the mortgage and walking away with the remaining equity.
On the death of the homeowner, the property remains a part of the estate. If surviving family members wish to retain the property, they can do so by simply paying off the mortgage — the same as it would be with a conventional mortgage. If the value of the property exceeds the mortgage balance when the homeowner dies, this would surely be the most sensible thing for surviving heirs to do. On the other hand, if the mortgage balance exceeds the then current market value, that debt does not affect the family. Instead, the property simply reverts to the bank and becomes the bank’s problem.
In theory, and in practice, a reverse mortgage, or HECM loan, can present senior homeowners with a wonderful opportunity to benefit from the equity in their home, while still living in the home for the rest of their lives.
However, before rushing into such a transaction, be aware that not all reverse mortgages are created alike! Some lenders and mortgage brokers treat reverse mortgages as an opportunity for huge profit, capturing large chunks of that equity in the form of loan origination fees and other closing costs. Don’t fall into that trap.
Not All Reverse Mortgages Are Created Alike
Closing costs on HECM loans can be costly, but they do vary from one lender to another. When I was exploring the idea of getting a reverse mortgage, and shopping among the several lenders I found advertising on TV, I was told that since all reverse mortgages are federally guaranteed, their terms were all the same. Trust me, that is only half true. Yes, such loans are all governed by FHA guidelines, but the lenders that underwrite HECM loans do have great leeway in the structure of those loans.
Also be aware that there are both mortgage brokers and direct lenders vying for your reverse mortgage business. There is a difference, and you may not readily realize how that difference might affect you. Mortgage brokers may suggest they have greater influence over your loan deal because of the volume of business they bring to the lenders. On the other hand, direct lenders may suggest they are better able to help you because they are not relying upon commissions. Both arguments can be convincing.
In my own experience, I dealt with six different reverse mortgage lenders before ultimately choosing the one best for me. Before committing to such a loan, you would be well-advised to check with me first. My research, conducted over nearly 17 months, saved me over $10,000. The actual savings was closer to double that amount, when compared with the first offer I considered — from one of those lenders who insisted that, “all reverse mortgages are the same.” Oh, no they aren’t!
That $10,000 I saved was the difference between the lender I ultimately chose, and the next best offer. That’s huge! I came very close to taking that other offer, even to the point of signing documents. But at nearly the last minute I became suspicious of something that loan officer said, something that turned out not to be true. I’ll spare you the gory details, but suffice it to say this experience caused me to pause, and check around to see whether others had had bad experiences with that particular lender. Oh yeah, lots!
Fortunately for me, I came across another near-victim, who had a similar experience with that same lender. That fellow pointed me in the right direction, to the lender he ultimately went with. Moments, literally, after I contacted that lender by email, I received a phone call from one of this bank’s loan officers. I told him my story, and of my experience with that other lender. He was not surprised. I was not the first, or even second homeowner who had similar experiences. This fellow took a genuine interest in my situation, and assured me that I could trust him and his bank to treat me well.
Not only did he fulfill his promise to make the transaction as smooth and painless as possible, the bottom line was that this bank offered me a loan that saved me over $10,000, compared to what the previous bank nearly sold me.
Skeptical? That’s okay. I understand, but I can prove it. Better yet, prove it to yourself. If you are considering a reverse mortgage (HECM) loan, contact me first. I’ll point you in the right direction. Give my guy a chance to perform financial magic for you, like he did for me, and see for yourself. I was very fortunate to have caught that other loan officer’s dishonesty when I did. But I was even more fortunate to have found someone else who nearly fell for the same pitch.
That is why I set up this web page. If I can help YOU avoid the same pitfalls, then you can benefit too. We “baby boomers” need to stick together. If you save a bundle, you may even appreciate my effort enough to express your gratitude.
No, I am NOT a mortgage broker. I’m just a regular aging homeowner like you, entering retirement age, who is extremely pleased with the bank and the loan officer who arranged my reverse mortgage loan. The savings he made possible made a huge difference in my life, more than I can even say.
Contact me if you are serious about getting the best deal on your reverse mortgage, I’ll be happy to put you in touch with my new favorite bank, and the loan officer who did such a great job for me.