Top 5 Misconceptions about Reverse Mortgages
3/5/12
TOP 5 – Borrower Misconceptions about Reverse Mortgages
If I take out a reverse mortgage, the lender will own my home
This is the most common misconception. Homeowners still retain title and ownership, and can choose to sell the home at any time. They must simply continue to pay taxes and insurance, live in and maintain the home.
Only poor, desperate, low-income seniors get reverse mortgages
There is a misperception that this is a “last resort”. While a HECM is effective at preventing foreclosures, many simply prefer to be free of monthly payments. Some homeowners can now retire or improve the quality of their retiring years.
Lenders pressure seniors to buy products or take advantage of them
Generation Mortgage only offers reverse mortgage products. In some states it is illegal to be compensated to “cross-sell” with a RM. But we are in the business of improving senior’s lives, and we expect those that work with us to strive for this.
My children will be responsible for the repayment of the loan
A HECM is a non-recourse loan. This means the borrower never owes more than the home is worth. There is NO RECOURSE for deficiency. The heirs can sell or refinance the home, but FHA takes the risk of the loan being upside down.
I can’t qualify for a mortgage because of my credit and income
While there is limited underwriting for them, FHA is less concerned with a borrower’s income, assets, credit score, or credit history. Many seniors who do not qualify for traditional financing ARE good candidates for a reverse mortgage.
HONORABLE MENTION
There are restrictions on how I can use my HECM Proceed False – There are no restrictions for the use of Net Proceeds.
I cannot get a reverse mortgage if I have a forward mortgage.
False – Most of our borrowers are paying off a mortgage at closing.
If I outlive my life expectancy, the lender will evict me.
False – There is no time limit and you still own your home.
I don’t have an objective advisor with whom to speak False – Counseling is not only encouraged, it is required.
Using a Reverse Mortgage to Help Defer Taking Social Security.
Many financial planners advise seniors to delay taking social security until age 70. For example someone who will receive $1000 at full retirement at age 66, will only receive $750 if they take their payout at age 62. If you wait until your 70 that monthly benefit would be $1320. Following that advise is easier said than done. Many people need to start taking their Social Security at age 62 to maintain their standard of living. By using a reverse mortgage a retiree can use the equity in their home to create a monthly income stream so that can defer taking social security until their later years. Once they start receiving their larger monthly social security, they can stop taking from the reverse mortgage.
For more information call the Reverse Mortgage Specialists at MSI 855 901 3100
New research reverses traditional view of Reverse Mortgages
Study suggests 180 degree change in thought
A recent article printed in the February 2012 Journal of Financial Planning is suggesting that the commonly accepted practice of recommending a Reverse Mortgage as an option of last resort is not the best way to maximize retirement cash flow. Two researchers used extensive mathematical analysis to arrive at the conclusion that, early use of a Reverse Mortgage line of credit can lead to “substantially greater cash flow survival probabilities” for people who are planning for retirement. Read http://www.fpanet.org/journal/ReversingtheConventionalWisdom/
In a second event this February indicating a change in thought, the NCOA or National Council on Aging launched a new consumer website Home Equity Advisor.org. It offers information on using the equity in your home for retirement income. “The website was made possible by a generous grant from the FINRA Investor Education Foundation.” Financial Industry Regulatory Authority (FINRA) has regulatory oversight over all securities firms that do business with the public.
Reverse Mortgages – Moving Forward
In my past few Reverse Mortgage Industry Updates I have talked about “change,” Government involvement, regulation, market conditions, declining property values and public perception. While all of these topics are still evolving, it’s time we shifted gears and look at where all of these influences are moving our industry.
In the past a Reverse Mortgage was considered to be an expensive loan of last resort, not anymore! Reverse Mortgages are becoming main stream and as such lenders are adapting. We now have a new loan programs with lower costs and lower loan amounts that address the cash flow needs of a more affluent borrower. This borrower may have net worth of 1 to 3 million dollars and is looking at a Reverse Mortgage as a financial planning tool. This borrower may be trying to fund the cost of Long Term Care Insurance or, simply have a Line of Credit to offset lack of income caused by market fluctuations without the burden of additional monthly debt service. This is what the saver program does.
We will continue to see change in our industry that will shape our products and benefits, some required, some requested, all designed to meet the needs of our senior clients.
If you would like more information about the saver loan programs, call me.
Chuck Rizzo
Mortgage Services III
630-235-6586
Shock value headlines a problem for Reverse Mortgage Industry
Reverse Mortgage Daily, an internet news agency and industry leader in disseminating information on Reverse Mortgages recently posted an article about Financial Fraud click to read. The data was supplied by the Retirement Research Center at Boston College reporting a 62% increase in complaints between 2001 and 2011
Complaints are not fraud. While I believe the numbers are accurate we need to look at the time period we are evaluating. We have experienced the largest economic downturn in our lifetimes during this timeframe. Are the complaints of “fraud” truly fraud or, merely the expression of frustration by seniors as they watched the value of their retirement assets and homes diminish at a time they were expecting to use them.
These types of dramatic headlines are eye-catching but dangerous. They create fear and misunderstanding and they present honest and responsible financial professionals in a bad light. While I do believe fraud should be prosecuted, let us not confuse a complaint with fraud.
5 Facts about Reverse Mortgages, That You Should Know.
There are a lot of myths and half-truths about Reverse Mortgages, so before dismissing a reverse mortgage as an option, talk to a Reverse Mortgage Specialist to get the facts and to see if a reverse mortgage is right for you.
1) Costs for doing a reverse are comparable to a conventional mortgage…even though you always hear they are high cost. Since this is a FHA insured loan , the difference is the cost of the Mortgage Insurance Premium. All fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees.
2) Social security and Medicare are NOT affected if you take out cash from a Reverse Mortgage, because it is a loan so the IRS does not consider the proceeds income.
3) The Lender or bank does NOT own your home..You OWN the home and are on title.
4) There are no monthly mortgage payments , however you still must pay your taxes and insurance.
5) A reverse is a non-recourse loan. This means the borrower or heirs are not responsible for any difference if the home is sold for less than what is owed. Borrowers are NOT leaving debt to their children.
To talk to a Reveres Mortgage Specialist at MSI Reverse call 855 901 3100
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About MSI
Mortgage Services III's Reverse Mortgage Specialists are here to work for your best interests! Contact us today to see if a Reverse Mortgage is right for you! MSI is headquartered in Bloomington, IL with multiple offices in the Metro Chicago area. 