The first time I ever speak with anyone who’s seeking information about Reverse loans, I always ask them why they are looking into one and how it would improve or change their life.
Most of the common reasons are the following ones:
- Eliminate an existing mortgage and stop having to make mortgage payments each month.
- Increase “cash” flow.
- Home improvements
- Money for unexpected expenses, especially for care-giving and medical bills.
- Avoiding withdrawals on savings and investments.
- Downsizing and buying a new residence.
If the reason to use a reverse loan is for cost of living expenses and increased cash flow, the funds from it can certainly make a difference in the quality of life for a senior, but what is the other option or options?
Sell their home? Or possibly rent out a bedroom or two, to family members or strangers?
Most people don’t want their privacy compromised by having strangers living in their home and having to tolerate someone else’s habits and behaviors that may not be compatible to their way of doing things.
Plus, it can be dangerous or at the least a bad experience.
This leaves the other option of simply selling their home, taking whatever money they net after paying Broker fees, home inspection costs and paying off an existing mortgage.
Hopefully they will net enough money to afford rent payments and continue to live on their own until they run out of their funds from the sale of their home.
Let’s discuss this last option in my next post. Does it make sense? Is it a good idea?
For many years the Reverse loan had a image problem and prior to them being placed under the auspices of HUD and FHA, they were quite terrible. Generally the client had to buy an annuity with the funds they received and also share their equity with the “lender” and thus the terrible reputation of the loan was created.
But that is no longer true and hasn’t been the case for many years, however the image continues to linger and quite often there is a credibility problem that professionals such as myself, have to address with a potential client in regards to “what they have heard” about Reverse loans.
None of us like to be “sold” anything and we certainly need to feel comfortable with our decision when it involves something as serious as a mortgage. And due to the confusing aspects of the loan it makes it quite challenging to explain it to someone that is considering using the option, because they may need additional funds for cost of living expenses, home improvement or leveraging a retirement saving ( and did I say?), unplanned medical expenses.
And there is high percentage of seniors that are carrying a mortgage burden and making mortgage payments each month on what may now be a “fixed income” and are no longer employed and might be drawing down on their retirement fund each month to pay this ongoing obligation.
The question for those of us in the industry, is how to best address the fears and concerns about the loan and also to transcend the mistrust and doubt as to whether or not they are some sort of scam. A scam to take over the borrower’s home and then “kick them out”.
This conversation will continue in a following post.