Reversing the myths about Reverse Mortgages: Separating Fiction from Fact
By GREG EASTMAN
“We don’t know what we don’t know.” That is my usual response to just about every retiree, neighbor, Financial Advisor, CPA, Attorney, Realtor, and even some fellow mortgage professionals, who is shocked upon hearing the facts about reverse mortgages. Fact is, most people whom a reverse mortgage would benefit the most, simply haven’t gotten the facts, or have listened only to myths, rumors, and misconceptions.
“I agree. It appears too good to be true. It’s not.” That’s usually my next response after educating folks on the facts. With a mystified look, they often then ask why wouldn’t every retiree get one?
It’s because most people simply don’t know the facts.
A brief history of the reverse mortgage:
Reverse mortgages have been around since 1961. The federally insured reverse mortgage program, which Congress created in 1989, and improved in recent years, is the safest way for a retiree, age 62 and above, to access their “housing wealth” without giving up their home. Congress named this program the Home Equity Conversion Mortgage, or HECM. The HECM is the reverse mortgage that is chosen by about 95% of homeowners today.
Here are some of the many misunderstandings about reverse mortgages:
Fiction: You must turn over your home to the bank.
Fact: The home remains yours. Just continue to pay your property taxes, homeowner insurance, HOA dues, keep up with home repairs, and maintain the home as your primary residence. That’s it.
Fiction: You must give up a portion of your equity to the bank.
Fact: There is no “equity sharing” with the bank. Only the balance becomes due. All your equity belongs to you or your estate.
Fiction: Your home must be free and clear.
Fact: No. You are required to pay off your current mortgage or HELOC
Fiction: There are income restrictions with the HECM
Fact: There are no minimum or maximum income limits.
Fiction: They should only be used as a last resort.
Fact: Financial scholars have provided research which demonstrates that the strategic use of a HECM Line of Credit can provide significant asset protection, especially when it is utilized as early in retirement as possible.
Fiction: They are only for seniors who are house rich and cash poor.
Fact: A growing number of affluent senior homeowners are adding a HECM as part of their retirement planning strategy.
Fiction: I can only do refinance with a reverse mortgage.
Fact: A widely unknown reverse mortgage option is the HECM for Purchase Program, which allow seniors to “right-size”. It was enacted by President Obama in 2009, as part of the Housing and Economic Recovery Act.
Fiction: Reverse mortgages are unsafe for seniors.
Fact: HECM’s have many consumer safeguards and are the most regulated mortgage available today. In fact, all customers are required to complete an FHA-approved counseling session before they can complete a HECM application.
How the HECM Program works:
The homeowner, or either one of married couples, must be 62 years old. Money can be accessed via lump sum, or a payment plan chosen by the homeowner, or it can be left sitting in a growing line of credit, which can be accessed as needed. A combination of these options can be chosen, and homeowners can switch between options whenever they choose. Homeowners are never required to make monthly payment. All interest payments can be deferred, which causes the loan balance to grow over time. Plenty of homeowners opt to periodically make payments, to increase the growth on the line of credit. The loan balance isn’t required to be paid back until the last remaining borrower has died, sold the home, or vacated the home for more than 12 months.
We are amid a growing retirement crisis.
Seniors are living longer and saving less. The average middle-income retiree has 2/3 of their total assets, sitting in their backyard in the form of housing wealth, yet most haven’t considered home equity when planning for retirement.
You worked to earn your equity, isn’t it time you let your equity work for you?
You owe it to yourself to empower yourself by getting educated.
Greg Eastman is a 29-year mortgage veteran, a huge fan of the underdog, and a licensed Mortgage Consultant focusing exclusively on reverse mortgages.
He can often be found along the extra mile, servicing senior customers in the Carolinas. He lives in Davidson, NC.
He can be reached at 704-236-6676, or via website: CharlotteHousingWealth.com