Over the years I have met many families who want to help their loved ones remain in their homes, but find it difficult to find the necessary resources. Many seniors are cash poor, but have assets including their homes that may allow them to remain independent at home.
I have found that many people are uncomfortable tapping into the equity of their home to help pay for their care. Unfortunately, many people have misconceptions about the various financial tools at their disposal.
One of the most misunderstood programs available to seniors and their families is the Reverse Mortgage. In an effort to bring some clarity to the matter, I recently spoke with a local authority in the field of home finance, Phil Miller. Phil is a loan professional with CARE Real Estate Advisors. We met a few weeks ago in downtown Kirkland and had the following conversation about Reverse Mortgages:
Ben Solomon: What is a Reverse Mortgage?
Phil Miller: A Reverse Mortgage is a loan designed especially for senior homeowners 62 years or older. It allows them to convert a portion of the equity in their home into cash. This equity that has built up over the years can be paid to these homeowners in a variety of ways, based on their individual needs and preferences. There are no restrictions on how they use these proceeds, and the payments are tax-free (although we recommend that a tax advisor be consulted to answer all individual questions).
BS: How does it differ from a traditional home loan?
PM: With a traditional mortgage, the borrowers must have sufficient income to qualify for the loan, and they are required to make monthly mortgage payments. The Reverse Mortgage is different in that it pays the borrowers, and it is available regardless of their current income. The money paid out generally doesn’t become due until the property is sold, or the homeowners move away permanently or pass away.
BS: How much can the homeowners borrow with a Reverse Mortgage?
PM: That depends on their ages, the current interest rate and the value of the home. Generally speaking, the more valuable the home, the older the borrowers and the lower the interest, the more that can be borrowed. Since there are no monthly payments, the loan doesn’t come due as long as the house remains the homeowner’s principal residence.
BS: Are these loans safe?
PM: Absolutely! Virtually all Reverse Mortgages are FHA-insured. And unlike a traditional mortgage, the borrowers can never be foreclosed upon or forced to vacate their home because they “missed their mortgage payment”.
BS: How can the borrowers receive their payments with a Reverse Mortgage?
PM: They have several options for drawing the funds. They may take a lump sum payment when the loan closes, they can set up regular monthly payments, they can establish a line of credit to draw upon when needed, or some combination of all three. As I indicated before, it all depends on the individual needs and preferences of the borrowers. And the plan can be adjusted if their situation changes.
BS: What about the costs?
PM: Most Reverse Mortgages have costs that are similar to traditional mortgages, such as interest charges, origination fees, closing costs, inspections, monthly service fees and insurance. These expenses are generally repaid when the loan comes due, along with the interest on the funds paid out.
BS: Can the lender take away the home if the borrowers outlive the loan?
PM: No! This is one of the most common misconceptions that people have about Reverse Mortgages. The loan does not have to be repaid as long as one of the borrowers continues to live in the house and keeps the taxes and insurance current.
BS: Are there any other misconceptions that you can help to dispel about Reverse Mortgages?
PM: Yes. Many seniors mistakenly believe that either they or their heirs might end up owing money when the loan comes due if the balance owing exceeds the value of the property. That is wrong! With a Reverse Mortgage, you can never owe more than the home’s value! And if the equity in the property exceeds the loan balance when the obligation becomes due, that equity belongs to the senior homeowners or their heirs.
Another misconception is that the lender somehow controls the property. However, just like with a traditional mortgage, the homeowners with a Reverse Mortgage continue to own their home and make all decisions related to it.
BS: Anything else that we should know?
PM: Reverse Mortgages are not the answer for all senior homeowners. However, for many of them, these loans offer an ideal opportunity to improve their quality of life and knock down the financial barriers to independent living.
BS: Thank you very much.
If you want to get more specific information about your personal financial situation, and whether a Reverse Mortgage is right for you, please contact Phil Miller of CARE Real Estate Advisors at (206) 227-8282 or at pmiller@carerealestateadvisors.com.
Subscribe to:
Posts (Atom)
