Is it Time for More Mortgage Professionals to Include Reverse Mortgages?
Steve Resch is Vice President of Retirement Strategies at reverse mortgage lender Finance of America, Conshohocken, Pa.
Finance of America believes reverse mortgages have earned a secure seat at the mortgage table to be considered along with other mortgage products.
To make this case, we’ve created a video series addressing myths surrounding reverse mortgages that have largely prevented their wider acceptance
The six-part Reverse Mortgage Minutes series takes about 15 minutes to watch and offers a potentially powerful case for the “modern” reverse mortgage.
Home Equity as Part of a Retirement Plan
For those 55-plus, a reverse mortgage can fill multiple gaps in a retirement plan. Because a Home Equity Conversion Mortgage pays off an existing mortgage (a requirement of the loan), homeowners can enjoy greater cash flow to manage current or future household expenses, such as long-term care risks and the maintenance of long-term care insurance premiums.
Minimum age requirements vary by state and loan type. 62 is the minimum age for a HECM. Certain proprietary products have minimum ages as low as 55. These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
Safeguards
Another video discusses several enhanced safeguards that protect both lenders and borrowers. For example, FHA-approved counseling now includes a mental competency component to confirm that prospective borrowers understand all aspects of their loan agreement. In addition, an eligible non-borrowing spouse who survives their borrowing spouse may remain in the home, under certain conditions. The right of the borrower to remain in the home is contingent on the borrower living in the property as their primary residence, paying property taxes and homeowner’s insurance, maintaining the home and complying with the loan terms. Another safeguard protects heirs from ever paying a loan balance greater than the value of the home they’ve inherited.
These materials were not provided by HUD or FHA and were not approved by FHA or any government agency.
Does the Lender Own My Home?
This video addresses the perception that borrowers must sign over their home to the lender in exchange for cash, which couldn’t be further from the truth. Like a traditional mortgage, the home serves as collateral for the reverse mortgage. Reverse mortgage borrowers continue to hold the title to property, signifying their full ownership rights, while the lender places a lien on the property. The loan will eventually need to be repaid, which may include using the home’s equity securing the mortgage, up to the value of the property.
Who is the Ideal Client?
A reverse mortgage is a long-term retirement planning tool that works best when the borrower can amortize the loan’s upfront costs over several years. Taking this long view, borrowers can apply reverse mortgage proceeds to manage long-term care risk or pay taxes on their Roth IRA conversions.
The reverse mortgage borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.
Closing Costs Explained
Home Equity Conversion Mortgages have a reputation for being expensive. This is largely because many of the costs are upfront and transparent, including an initial insurance premium of 2% of the property’s value up to the FHA maximum lending limit, which can be rolled into the reverse mortgage
Reverse Mortgage Line of Credit (LOC) vs. Home Equity Line of Credit
A Home Equity Conversion Mortgage line of credit stays in place regardless of economic conditions as long as the borrower continues to pay all taxes, homeowners’ insurance, home maintenance costs and comply with loan terms. Additionally, HELOCs typically come with 10- or 15-year payoff terms, while Home Equity Conversion Mortgage LOCs don’t require repayment until the borrower sells the home, permanently leaves it, passes away, or fails to comply with all loan terms.
For financial professional use only. Not for distribution to consumers or the general public.
This article does not provide tax or financial planning advice. Please consult the applicable professional for such advice.
For business and professional use only. Not for consumer distribution. This guide is intended for informational purposes only and should not be construed as legal, compliance or tax advice. Consult with your own compliance department or legal counsel for guidance specific to your situation.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
