by Mark Schumacher, Home Equity Retirement Specialist, Retirement Funding Solutions
Here’s a scenario I hear from homeowners. A TV ad for reverse mortgages catches your eye. You decide to check it out and see how it works. Your inquiry turns up some interesting points. It doesn’t sound quite the way you expected. You decide to talk with a lender to dig a little deeper. During that discussion you learn even more information that gets you thinking even more positively about the program. You’re surprised and perhaps even excited about what this program can do for achieving your retirement goals. You tell a friend what you’ve discovered and the response you get back is less than supportive.
What the lender tells you sounds really good, yet you have friends or associates, maybe even trusted advisors, that hold a different opinion. This is an information disconnect and it can leave you in a quandary.
First, let’s review four key points about the reverse. Shelley Giordano, Chair of the Funding Longevity Task Force and author of “What’s the Deal with Reverse Mort-gages?” calls them the 4 Nevers: never give up title to your home, never owe more than the value of your home, never have to move, and never have to make a mortgage payment.
These “4 Nevers” encapsulate what makes the reverse mortgage program safe for homeowners age 62+. The home is still yours. You’re not giving up ownership. When the loan comes due you’ll never be responsible for paying back more than the value of the home. In other words you and/or your heirs are protected in the event the loan goes upside down thanks to the non-recourse feature. Even if the loan goes upside down you don’t have to move, though you have the freedom of moving and paying the loan off if you choose to at any time. Lastly, probably the most recognized appealing point of the reverse is not having to make mortgage payments on the money used, though that too is allowed for any homeowner that chooses to.
“You’ll lose your home” is probably the most common answer given by homeowners for why they don’t like reverse mortgages. This response most likely stems from stories about non-borrowing spouses (NBS) that were required to pay the reverse mortgage back when their “borrowing spouse” passed away. In other words, the loan was not done in both their names.
In 2014 FHA made changes so that even if there is a NBS they have protections to prevent this in the future. How do you lose your home with a reverse mortgage? Let’s ask that another way. What are your responsibilities to keep the loan in good standing? Pay your property taxes, homeowners insurance, association dues if applicable, keep the home up, and maintain the home as your primary residence. Aside from these things you’d have to go out of your way to go into default, such as be convicted of operating a methamphetamine lab or growing a marijuana field for example. Good advice for reverse mortgage applicants…it’s time to walk the straight and narrow!
Here’s more good news…homeowners that have researched it and see the appeal, yet are uncomfortable because of what others say, have a third option. You don’t have to take the lender’s word. You can talk with an FHA-approved reverse mortgage counselor. These counseling agencies have no stake in whether homeowners get a reverse or not. Their task is to educate and inform the homeowner regarding how this program works. There typically is a charge for the counseling (generally $100 – $200) though some agencies allow this fee to be paid thru the loan. Doing this counseling does not require you to go any further with the program. They are an unbiased, independent third party. You can find these counselors by asking a lender for a list of them, or if you prefer not talking to a lender, by calling 800-569-4287, or searching at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm.
Homeowners have options for getting informed and thinking strategically about putting housing wealth to work. Empower yourself with the full, unbiased picture, sooner rather than later.