Mortgage Basics - So, what is a Reverse Mortgage?

So, the bank is going to pay me instead of me paying the bank? In one word, YEP! This is a type of loan were your home equity is turned into cash.

If your a "boomer" that may be short on savings to retire and your mortgage payments are sucking you dry you might have another option. A Reverse Mortgage.

I am not saying that this is the answer for you. As in every mortgage we have advantages and disadvantages. But lets take a look at the process.

A reverse mortgage is exactly that. Instead of a monthly mortgage payment the bank pays you. Now of course you have to qualify. You didn't think the bank was just going to give you money did you? To qualify here are a couple of things:

• You need to be 62 or older. In the case of two people on the mortgage, the age is based on the youngest of the two.
  
• You can get a lump sum of cash.
  
• You can get monthly payments or a line of credit that you can tap into when you need it.
  
• The payment does not usually affect social security or Medicare but we need to check.
  
• Your credit score DOES NOT matter with a reverse mortgage.
  
• You do not have to have assets to get a reverse mortgage.
  
• You will still be responsible for property taxes, homeowners insurance and any repairs on the home.
  
• The amount you can borrow depends on your are, the current interest rate, and the appraised value of your home.
  
• The rule of thumb here is the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
  

Now who can benefit the most with a reverse mortgage? The older you are, the more likely you are to benefit from a reverse mortgage to AARP. First, you'll probably have built up more equity in your home. And since lenders calculate the payout based on your age and your expected lifespan. Reverse mortgage are most beneficial if you own your home or have a small amount left to pay on the original mortgage that can be paid off at closing with the proceeds for from the reverse loan, according to HUD. Also reverse mortgages are also best for people who want to remain in their home for the long-term. If you're looking to move in two or three years, a reverse mortgage may not be right for you.

Weigh the Downsides

Like all mortgages there will be fees (don't get me started with the no-closing costs stuff). There is an origination fee, appraisal fee, title fee, escrow fee, recording fee, a monthly servicing fee and an ongoing mortgage insurance premium. The fees will range between 3 - 5%. They can be included in your loan balance, if there is enough equity available.

Remember - a reverse mortgage is a loan with rising debt and falling equity. So, if you get a lot of cash over the years, there will be little, if any, left over for your heirs according to AARP.

Do your Homework. Call or email me with questions

While reverse mortgages are only about one percent of the mortgage market. They are on the rise. In fact, not a day goes by when I do not get a email from a "new company" pushing reverse mortgages. This only tells me that a bunch of people are going to make bad decisions and get taken advantage. Please don't let this happen to you. While there are plenty of good brokers and bankers that can help. Do not get scammed. The Reverse Mortgage market is ripe for things like this to happen.

Now there are a lot of nuance you need to look at before doing this. In fact, you are required to get counseling before buying this product. These can be done on line and I do have a list if you need on. Also be careful of lenders that will try to get you to buy different products like long term care insurance or annuities.

This is a great product for the right client and the right situation. If you have any questions contact me and lets see if it is the right product for your mortgage needs.

Happy Selling! (I always sign this way)
Tony Grego - Indiana Mortgage Broker

 

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