The Reverse Mortgages is possibly the least understood mortgage product ever introduced. So let’s take a few minutes to explore what a reverse mortgage is, and what it is not. There is plenty of mis-information out there so we have a lot to work with.
To start with, you should know that the best reverse mortgages (The HECM loan) are guaranteed by the FHA. All HECM reverse mortgages carry PMI, which allows the FHA to offer all of the guarantees that will keep you safe in your home. It’s instructive to note that the FHA is presently taking large losses on the HECM loan. This is a result of the generous guarantees that the FHA is making good on every day. This also means that people who have reverse mortgages, as a group, are winning big. The FHA has recently taken some steps to reduce the losses in an effort to keep the program viable in the long term. It’s not inconceivable, however, that more changes will come. Future changes to the program will not affect current reverse mortgage holders.
Fact or Myth?
- If I take a reverse mortgage, I will never have to make a mortgage payment. This is mostly true. A reverse mortgage will pay off any existing liens. Future interest payments will be amortized against the equity in your home. You will never make a payment as long as you continue to live in your home, maintain it and remain current on your taxes and insurance.
- When you take a reverse mortgage, your bank owns your property. This is absolutely not true. With a reverse mortgage, you continue to own your property just as you do now. It is true that the bank will place a lien on your property just as your present lender has. This is to protect the lender in case of default.
- I can be asked to leave my home if property values go down. This is false. As long as you continue to live in your home, maintain the property and pay your taxes and insurance, you will be able to live in your home, no matter how long, and no matter what else happens. And, you will never make a mortgage payment. If you fail to do any one of these three things, the balance of the loan will be due and payable.
- Reverse mortgages are expensive. This is sometimes true and sometimes not so true. It depends a lot on who provides your reverse mortgage. What many won’t tell you is that it is possible to get a reverse mortgage with costs that are typical of any refinance, and in some cases, without any closing costs whatsoever.
- It’s possible to buy a home using a reverse mortgage. This is true.
- Sell your present home
- Use part of the proceeds to put about 50% down on a new home
- Never make a payment on the new home
Reverse mortgages can be good for people who have substantial equity in their property and who would benefit from lower monthly expenses. It can also be helpful for people who would like to reduce or avoid monthly draws from their investment accounts.
Every situation is different and must be evaluated independently.
If you have questions about a reverse mortgage or would just like to explore, give us a call at 301 468-5600. As always, your call is always welcome at Primex.