Is a Reverse Mortgage a Good Option?

Filed under: Market Comentary

reverseOne major conversation in the mortgage market is the reverse mortgage and its pros/cons.

A reverse mortgage is a special type of home loan that lets you convert a portion of your home’s equity into cash. The equity that you built up over the years of making mortgage payments can be paid to you; however, unlike a traditional home equity loan or second mortgage, Home Equity Conversion Mortgage (HECM) borrowers do not have to repay the loan until the borrowers no longer use the home as their principal residence.

To be eligible for a FHA HECM, you are required to be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home.

According to a recent article by Jack Guttentag, most retiring seniors own homes in which they have a significant amount of equity, which could actually be unlocked by taking a HECM. Guttentag states that “the need is great and the potential size of the reverse-mortgage market is enormous.”

However, not many of these reverse-mortgages are written. Guttentag says that this is mainly due to the lack of motivation by seniors who, even though their lives could improve with a HECM, they don’t really feel any sense of urgency. Guttentag also suggests that this lack of motivation is reinforced by lack of knowledge, adverse media reports on the reverse-mortgage, and the fear of seniors making a mistake with one of the things they cherish the most, their home.

Guttentag calls this “senior lethargy,” and according to his article, he identifies what is needed for seniors to overcome this.

  • The first is a good information source on how the different HECM options can be used to meet one or more of the seniors’ needs
  • The second focuses on a reliable and easy-to-use calculator which will enable seniors to determine the specific amounts of any particular HECM option, or combination of options, available at their current age and home equity
  • The third is personalized guidance on HECM options, which can be made available to seniors before they actually contact a lender
  • The final thing is an effective online market where seniors would become more confident that they would not be scammed or ripped off

Reverse mortgages can not only assist seniors in reducing their monthly debt, but can also help seniors to acquire the funds necessary to purchase additional property such as a second home in a retirement community or warmer climate.  Please contact me if you’d like additional information.



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