A Note To Trusted Advisors
A reverse mortgage is not for everyone. Our goal is to work with trusted financial and legal advisors to help determine if a reverse mortgage meets the needs of your client. We can accomplish this by providing detailed loan scenarios to you (with your client’s permission) and personal consultation with our staff to help reach a decision that is aligned with the interest of all parties. We are up front with all our clients about the advantages and disadvantages of a reverse mortgage.
Advantages
Reverse mortgages provide many advantages for the senior borrower. Here is a short list of just a few:
- Proceeds received from a reverse mortgage typically do not affect Social Security or Medicare.
- Provides access to a portion of their home's value without the requirement of monthly mortgage payments. Borrowers must continue to meet ongoing property obligations such as homeowner’s insurance and property tax payments.
- Could allow senior to purchase a new home with no monthly principal and interest mortgage payments.
- Could provide a source of cash flow while borrower allows their investments to recover from market losses.
- Improves a senior’s standard of living or allows them to live out their non-working years with fewer financial worries.
- Pays off existing mortgage freeing up monthly cash flow which would have been committed to ongoing mortgage payments. With the reverse mortgage, there are no more required principal and interest mortgage payments.
- Borrowers are required to live in their home as their primary residence, continue making payments for homeowner’s insurance and property tax charges and maintain the property per HUD requirements.
- Allows the senior to maintain their independence while living in their own home.
- Provides money for in-home health care or medical expenses.
Disadvantages
- Potential foreclosure of the home if the borrower does not meet the ongoing obligations of the loan such as paying property taxes, homeowner’s insurance or other required property charges, and must maintain the property per HUD requirements.
- Spends part of the equity that would be passed on to the estate or children.
- Increasing loan balance, decreased equity over time.
- May affect eligibility for needs-based programs such as Medicaid.
- For those itemizing tax deductions, a reverse mortgage can eliminate the deduction for home interest if no interest is paid out of pocket. However, if the homeowner pays the upfront fees and the accruing interest, the homeowner deduction may be available to them in the year the interest is paid.
- Closing costs and insurance are expensive which means the borrowers should plan on living in the home for several years to reduce overall costs.
A Potential Reverse Mortgage Borrower
There is no stereotypical reverse mortgage client. There are some considerations for those who may benefit from this unique loan.
- Substantial home equity and has a limited or fixed income.
- Wants to maintain or improve lifestyle.
- Prefers to access mortgage loan proceeds instead of other accounts or sources which may be taxable.
- Wants to remain in home and age in place utilizing a reverse mortgage.
- Home Equity Conversion Mortgages are the only Reverse Mortgages insured by FHA.