REVERSE MORTGAGE BASIC INFO

A Reverse Mortgage converts equity into income from your home that you don't have to repay as long as you live there.

Think back when you purchased your home.  You undoubtedly got a regular or forward mortgage (15-year, 30-year, adjustable rate, etc.), and as you made your monthly loan payments your mortgage debt continued to go down.  This happened over time until you paid it all off or lowered it significantly. Meanwhile, your equity was rising as you repayed your mortgage and your property value appreciated over time.

With a reverse mortgage, you go full circle. Now you get to receive money, lump sum, monthly payments, or in a credit line that gains interest. Now it is finally your time to get the money in reverse.

Here’s a good way to think of this program.  In a regular or forward mortgage, you use the debt to convert your income into equity. In a Reverse Mortgage, you use the debt to convert your equity into income. You are reversing the process you initially used to buy your home. So, when you started, you had income and wanted equity. But now, you have equity and want income.

Ways Reverse Mortgages Differ From Regular Mortgages:

A Reverse Mortgage is well worth your consideration if it fits your particular circumstance. If you have some unpaid bills, want to make some home improvements, or simply feel like eating out and traveling more often, a Reverse Mortgage may be the perfect solution.

Common objections?
If you're like most senior homeowners, you worked hard for many years to eliminate or lower your mortgage balance. After the years of mortgage payments you’ve gone through, the thought of reversing that process and rebuilding the debt owed on your home can be an unsettling thought. Furthermore, Reverse Mortgages are a relatively new type of loan that has many misconceptions. I receive great satisfaction in being able to answer your questions & give you a comfort level that will help you make an intelligent, informed decision to see if a Reverse Mortgage is right for you.

Can you lose your home?
Many seniors don't fully understand Reverse Mortgages and often have preconceived notions about how these mortgages work. Seniors with home equity often mistakenly think that taking a Reverse Mortgage may lead to being forced out of their home or ending up owing more than the house is worth.

The fact is, you won't be forced out of your home. Nor will you (or your heirs) end up owing more than your home is worth. Remember that Federal law defines Reverse Mortgages to be non-recourse loans, which simply means that the home's value is the only asset that can be used to pay the Reverse Mortgage debt balance. If a home's value does drop below the amount owed on the Reverse Mortgage, the lender must absorb any loss. 

Would a home equity loan or second mortgage work better?
Some seniors who are concerned by having to understand reverse mortgages wonder whether it would be easier to just get a home equity loan that allows them to take some equity out of their home. The obvious problem with this approach is that you now you have to immediately begin paying traditional mortgage loans back, thereby cutting into your monthly cash flow & savings.

For example, suppose that you own a home worth $250,000 with no mortgage debt. You decide to take out a $100,000, 15-year mortgage at 7 percent interest. Although you will receive $100,000, you'll have to begin making monthly payments of about $896. No problem you may think; I'll just invest my $100,000 and come out ahead. Wrong!
Often seniors lean toward safe bonds, which may yield in the neighborhood of 5 to 6 percent - yielding about $416 to $500 of monthly income - far short of the amount you would need to cover your new monthly mortgage payments. You could invest in stocks and earn the market average return of 10 percent per year, which is not guaranteed.  Your returns would amount to about - $833 per month - but still not enough to cover your monthly mortgage payment. (Remember, most income from stocks and bonds is taxable at both the federal and state level. By contrast, Reverse Mortgage payments you receive are tax free.)

Also, another downside of taking out a traditional mortgage to supplement your retirement income is that the longer you live in the house, the higher your risk to run out of money.  This could lead to the possibility of missing loan payments because you used your principal (savings) to supplement inadequate investment returns and cover your monthly loan mortgage payment. If that happens, unlike with a Reverse Mortgage, you may be faced with a possible foreclosure on your loan. 

Who can get a reverse mortgage?
We know that Reverse Mortgages are not for everyone, because not everyone qualifies for this program. See below if you are eligible:

I sincerely want you to feel comfortable about understanding a Reverse Mortgage. I want to help you make next month better for you than this month.

Please take a few moments to review the rest of this web site, or call me personally. Also, I recommend jotting down any questions you have, then email or call me. Other recourses may include your accountant, tax advisor, and/or trusted family member.