reverse mortgages money
Depending on whom you may talk to about about reverse loans, you will get many different opinions as to whether or not they are awful, wonderful or somewhere in between these two poles of opinions.
There is a number of inquires that come up on the Internet from people who are searching for information about these unique loans. And some of them are as follows:
- reverse mortgage cons
- simi valley reverse mortgage
- reverse mortgage disadvantages
- reverse mortgage companies
These are just a few of the searches that come up and of course there is more of them than I can list here.
The one that I didn’t see is “the loan of last resort”. At one time, the typical borrower was a senior who was running out of money to live each month and had no other resources for funds. And originally these types of borrowers were quite common.
And thus the term “the loan of last resort” was coined. But it’s incorrect these days because they are now being used to protect ones’ retirement savings from being rapidly drawn down, paying off an existing mortgage or buying a new home.
Reverse mortgages are the same as a traditional home mortgage, with the exception that the borrower is not obligated to make mortgage payments each month. Keep the home insured pay the property taxes and keep the home in good repair.
What are the typical objections to reverse loans? The equity is being drawn done ( but not necessarily) and their closings costs and fees are expensive.
I will go over these two concerns in my next post and the negative image this mortgage has with professionals and others.
I am often asked why seniors get a reverse loan, there are various reasons and different situations where it becomes the best option, and over the years I have encountered the most common reasons and they tend to be the same ones each time I meet with a client.
The number 1 reason is that seniors simply don’t have enough money every month to cover their ongoing expenses and especially since services, utilities, food, insurance, and medical care have increased but not their income and they may be burdened with a mortgage payment and using their savings to pay it each month.
The number 2 reason is for unexpected and major expenses. Lately, I am meeting with families who can’t afford to pay caregiving expenses, due to a major medical event and they are draining the money from their savings and investments to cover the fees and are concerned about running out of money.
Another unplanned expense might be home repairs. Typically it is a very expensive plumbing repair or a new roof for their home. Quite often there is a great deal of deferred maintenance and now repairs have become necessary and can no longer be put off or delayed.
The number 3 reason, is they want to remodel their home and make it more “senior friendly” as they age and plan to continue to live in their home. It could be remodeling a bathroom or kitchen to make them easier to maneuver in and make things easier to reach if someone is in a wheelchair and of course other considerations.
And the number 4 reason, is they simply want more money to enjoy their life. They may want to travel, purchase a second home using the reverse loan money towards that purchase, or simply to have the peace of mind, that they will not be financially restricted because they will have enough money to meet their personal needs.
A reverse loan can be used for many different reasons, but these are the ones which are the most commonly used by seniors and their families to solve a worry or problem.
Well, that’s an interesting thought, because in reality no one can financially “thrive” or survive on the income they may receive from Social Security. It is unrealistic. But for many seniors, it is their only income and after Medicare and taxes are deducted, the amount left over is not very much.
This year 2019, saw a bump in the amount of funds seniors are entitled to via the COLA or “cost of living adjustment” and that in of itself is laughable. It comes out to be on the average $39.00 more each month. Essentially it does not make an impact on the cost of living and the monthly expenses that continue to increase.
Fuel, food, utilities, medical prescriptions, medical care, home maintenance, insurance premiums for homes and or medical coverage. And the list goes on. Plus there are always those unexpected expenses that appear when one can least afford them.
A solution for seniors would be to utilize funds from a government-insured reverse loan to cover the financial shortfalls, maybe eliminate a mortgage payment freeing up additional cash flow and not constantly worrying about how they are going to get through each month without running out of money.
If you were to do a survey of the senior community and asked each one of them, what is their biggest worry, it wouldn’t be health problems, but outliving their savings and having no money to take care of their lives.
When I first started in the reverse loan industry over 17 years ago, there was only one loan option at the time. And it was the FHA Home Equity Conversion Mortgage, affectionally known as the HECM. It is a Line-of-Credit and remains the most popular reverse mortgage that seniors apply for.
Initially, there was one interest rate and no other choices, but now there are several different rates that a borrower can select, of course depending upon what is the most beneficial to them and their particular goals. And there are also Fixed-rate mortgages for those who may be sensitive to interest rate fluxations.
And although the FHA loan remains very popular there are additional options for the borrower to choose from, especially if their home exceeds the HUD Lending Limit that as of this writing, is $679,650.00 and they want to access more of their equity than the HECM would provide to them.
So what is the solution to this question when a home’s value is much more than the HUD Lending Limit and especially in those states such as California where the average home value is quite often above 1MM?
A Jumbo reverse loan of course. And in the last few years what started out as a single offering, has developed into several options allowing more benefits to a senior homeowner.
My next post will share some of the details about them, how they function and whether or not they are always the best choice for a senior who is considering a reverse mortgage.
I think it tends to be human nature in that for some people, they hesitate to make a decision for just about everything that requires one. Whether it is getting married or maybe divorced, having children, taking a leap at a new career or choosing a paint color for their house.
And it’s prudent not to blindly rush into anything, you should be well informed before making decisions that are especially crucial to your life.
Most of the time these decisions are minor, but what about the ones that are not and could potentially have a huge impact on your life and future?
Sometimes this hesitation comes from looking for the best price for something if you are considering doing a large purchase, but other times it comes from a place of being worried about the possibility of making a “wrong” decision.
Or not being educated enough about whatever it is you are considering. So, you put off making any decision about it indefinitely.
A good question to ask yourself is, “what is the worst thing that could happen if I make a decision and it turns out to be awful?” Asking yourself that question can potentially take away your fear and help you to move forward.
However, hesitating or waiting can continue for a very long time and it can be costly. And what is the “cost’ of waiting?
If you are hesitating in learning about reverse loans because you have heard “bad things” about them, why are you allowing yourself to be influenced by other’s opinions that generally are incorrect instead of doing some research with a professional?
What is this inertia costing you every month that you wait to find out how much money you could possibly receive from the HECM loan?