Are Reverse Loans Safe?
Reverse loans are highly regulated and the senior consumer is well protected from any type of financial abuse and over the last decade many regulations have been put into place which makes a reverse loan a very safe option for seniors to use.
Before anyone can start the loan process, they must complete HUD Counseling with an approved Counseling agency and they can ask questions and discuss their concerns with the counselor.
A list is provided to the potential borrower with a proposal provided by the Loan Officer that offer many counseling agencies for them to chose from.
All fees are disclosed in the proposal, and can be discussed with the Loan Officer. Along with federal regulations and disclosures, each state has their own set as well.
Spouses who are under the minimum age 62 will be able to remain in their home if the older borrowing spouse predeceases them, and no longer have to worry about selling and moving out of their home.
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Seniors are worried about out-living their money, and with medical expenses, care giving costs, utilities, food and other monthly expenses, funds from a reverse loan can make life easier and certainly remove the stress and worry about running out of money.
They are a very safe and sensible option on how to use the equity in your home, for funding and preserving your retirement and could be an important part of a financial strategy to make your savings last longer.
Inflation
As I am writing this post, it was noted today that inflation has increased to 7%, the highest it has been in many years, and although, I am not an economist or a financial advisor, and certainly not qualified to discuss why this is happening, I do know that it is affecting how much a dollar can buy.
Most seniors are on fixed incomes, and sometimes they only have social security to rely upon to use towards their monthly expenses. There was a slight increase for 2022, but it is essentially wiped out due to the increase costs of food, utilities, and goods.
Given the costs of medical insurance, unplanned medical expenses, or home repairs and maintenance, many seniors do not have enough money each month to cover even their essential and ongoing expenses.
My more recent reverse loan clients are taking advantage of historically low mortgage interest rates, and increased equity in their homes and are refinancing and using a reverse loan to eliminate their concerns about running out of money.
They have no mortgage payments, access to their equity for additional income, and still own their home.
Life is so uncertain at this time, due to the Pandemic and social issues, but at the least funds from a reverse loan could be an antidote for financial insecurity.
Social Security Increase for Seniors
The increase in Social Security benefits for seniors is the largest in four decades and on the average will increase monthly checks by about 5.9%
However, it won’t offset inflation or the cost of living, plus it will be taxed as income.
Initially some seniors might be excited to see their checks increase, but all in all, it will be “zeroed” out as the costs of goods, food, utilities, and medical care continue to increase.
It is a bit depressing, but there are many seniors who own and live in their homes, and they are now more than any other time in the past, using funds from a reverse loan to pay their ongoing expenses, and eliminate making a mortgage payment.
Eliminating a mortgage payment, increases their cash flow each month, and may slow down withdrawing funds from savings and investments and leverage the longevity of their cash reserves, plus possibly avoid paying tax penalties for the withdrawal of funds from their accounts.
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Reverse loans are highly regulated, safe, and a sensible way for seniors to age in their homes and have some peace of mind. They can afford to continue to do so without possibly running out of their investments or savings, and they can refinance them in the future for additional funds without any prepayment penalties.
Considering a reverse loan for financial stability should always be considered and part of a retirement plan, and it is a wonderful option to have for older Americans who wish to remain in their homes.
Can Reverse Loans be Refinanced?
The answer is “yes”. Reverse loans are like any other mortgage with the exception the borrower does not have to make any mortgage payments. They simply must continue to live in their home, pay the property taxes and Homeowners insurance on time, just like they ordinarily would do anyway.
And there is no prepayment penalty on the loan being paid off, plus the borrower’s will receive a mortgage interest tax deduction in the year they complete the refinance.
Reverse loans are calculated on the age of the youngest borrower and the value of the home. The older the borrower is and the higher the value of their home, means that they might be able to refinance an older reverse loan, improve their interest and receive more money.
Mortgage interest rates are extremely low, and home values have “shot through the roof”, and many people have more equity in their residence than any other time in the past.
It could be a very good decision to refinance a loan to a much lower interest rate and receive more of their equity and additional money.
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I have had many of my former reverse loan clients contact me to start the process, and now is the best time to do it before interest rates begin to increase in the future.
Don’t hesitate to find out if you can refinance or not, you don’t want to miss out on this opportunity.
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The Pandemic
The last 18 months of life for everyone has been very hard and uncertain due to the Covid-19 pandemic. It was particularly frightening for seniors because they were more likely to become ill with it and possibly die.
No one was left untouched by it, either by death or the loss of employment and most certainly the loss of structure and a feeling of safety.
I received many calls from seniors during this time, very afraid about running out of money and trying to take care of themselves, and at the same time, cut off from their families and feeling isolated.
Some had entered into forbearance agreements on their mortgages and the payments for them were paused, but they were now being notified by their Lender to resume them, and many did not have the income to start making payments again.
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I received many calls for help, and I was able to provide everyone a reverse loan and at the least, make them feel a bit safer and and less anxious about what was going to happen to them.
It was challenging when we couldn’t meet personally, but I made it work for each client and we got through it together.
I am grateful that it seems we are moving forward with more confidence and less fear, and I am also grateful that I was able to help many seniors last year by providing them with more money and peace of mind and we survived the pandemic together.