Who Benefits From a Reverse Mortgage?
Do you know some older folks who are having a hard time covering living expenses and the medical bills are piling up? Have they paid off most or all of their mortgage? Maybe they are not looking to buy a house, and they want to stay in their home as long as possible. What can they do to improve their situation? Maybe they can improve their situation with a reverse mortgage.
What is a Reverse Mortgage?
A reverse mortgage is a loan. It pays back borrowers for the equity they have built up in their homes. They will no longer have to pay their mortgage, but will instead receive monthly payments, as long as they qualify, and they keep current with property tax and home insurance,
Who is Eligible for a Reverse Mortgage?
Anyone 62 years and older who owns their own home is able to apply for a reverse mortgage loan. Qualifications are that their house has to be completely or mostly paid off. The home is used as security for the loan. These payments can be used to help them cover bills, food, anything they need. The money does not have to be used for a specific reason. Borrowers can use it to travel the world if they’d like.
How Does a Reverse Mortgage Work?
The home is used as security for the loan. The loan remains in the borrowers’ name, but instead of paying loan payments to the lender, the lender pays payments to the borrower until the borrower no longer lives in the house. When the borrowers move out of their house, the loan must be paid back, or the house must be sold to repay the lender. This leaves less for the borrowers in the future and less for their heirs to inherit later, so it must be a decision that is not to be taken lightly. Because interest is being added, the amount owed increases over time.
Things to Consider
When considering a reverse mortgage loan, it would be wise to take the following into account:
- Fees and other costs – In addition to an origination fee, there are service fees and closing costs, plus sometimes they charge mortgage premiums.
- Interest adds up – Interest is added to the balance monthly so the balance increases
- Interest rates may change – Reverse mortgages usually have variable rates, so they fluctuate with the market. HECM’s, on the other hand, offer fixed rates.
- Interest not tax-deductible until paid off – You cannot deduct income from your tax returns until you have permanently moved from your home and the loan is completely paid off
- Must pay other home-related costs – As the borrower keeps the title to their home, they must also keep up with monthly insurance payments, property tax payments, HOA fees (if any) and keep the home and property in good repair.
- What about the spouse? – In certain situations, the spouse may be able to stay in the house when the signer dies if they continue to pay taxes and insurance, however, they will no longer receive payments from the loan, if they were not part of the loan agreement.
- Remember your heirs – Since reverse mortgages eat up the equity in your home, it means less money and fewer assets for your spouse and heirs. There is usually a clause, however, on most reverse mortgages that says your estate can’t owe more than the value of the home. It is called a non-recourse clause, and it allows the borrowers, spouse, and/or heirs to pay off the loan to keep the house if they so desire, and they wouldn’t have to pay more than the full amount of the loan to the appraised value of the home.
Benefits of a Reverse Mortgage
If your clients are in between a rock and a hard place and might need to sell off their home to pay off bills and keep food on the table or they feel like with more money they could travel and live life to the fullest, then maybe they are ready for a reverse mortgage. It is a way to keep them in their homes where they feel safe and comfortable. It will pay them so they not only can afford to cover monthly expenses, but they also don’t need to pay their mortgage payments.
Watch Out for Scams
Unfortunately, there are people out there who will try to use a reverse mortgage as a scam. Some say they are contractors who will repair the home, and all the owners have to do is get a reverse mortgage to pay for it. Also, the VA (Department of Veteran Affairs) does not offer reverse mortgage loans. Beware of ads that falsely advertise specials deals for veterans, or imply approval for Veterans, or offer a “No-payment” reverse mortgage. A reverse mortgage is complicated and is not something to rush into.
Right to Cancel
Your client has three business days to cancel a reverse mortgage after closing, without penalty, for any reason. It is called the “right of recission.” To exercise their right of recission, they must notify the lender in writing, and it must be sent by certified mail, and they need a return receipt so you can document when the lender received it. Your clients must keep copies of any correspondence and enclosures. After cancellation, the lender has 20 days to return any money paid for the financing.
Choose Bluepoint Mortgage
A reverse mortgage can provide a way for seniors to stay in their house and pull from the equity they have built up in their homes without selling it outright. However, a reverse mortgage is a costly and complicated financial contract that should be entered into with care. At BluePoint Mortgage, we understand that there is a borrower at the end of each transaction. Our philosophy is that the simpler we make the products and process for our customers, the quicker we close loans for the borrower(s). We can help you understand reverse mortgages and help you make the best choice for a loan for your client. Contact us today!