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Reverse Mortgages revisited – Part 2

Published June 13, 2018

Common questions, misconceptions

There is quite a bit of misunderstanding about reverse mortgages. Basically, a reverse mortgage is an excellent tool which, if used correctly, can be a tremendous asset to older homeowners. So let’s look at some of these:

  1. Who owns the home? Reverse mortgage is a real estate loan, and all loans are secured by liens on your home. However, the home is yours, and you are free to sell, refinance, or pay off the loan at any time
  2. Can the lender foreclose on my home? As long as you pay your property taxes, association fees, and insurance, your home can never be foreclosed on.
  3. Can I be forced to sell? Your home must be sold in the event that you (and your spouse, co-owner, over 62) are either deceased or no longer able to stay in the home. As long as one of you may stay in the home, you will not have to sell.
  4. What happens if we must sell? The heirs have up to 12 months from the time you and/or your spouse are no longer able to live in the home
  5. Can my heirs lose money on the sale? Reverse Mortgage is a “Non-Recourse” loan. If there is insufficient equity, the lender must accept the proceeds from the sale as “Payment in Full”. In addition, the heirs may receive an “Additional 5% of the loan amount to assist with a sale”
  6. I have very limited Income/my credit is not very good? Reverse mortgages do not use income and, for the most part, credit, as factors in qualifying.
  7. Doesn’t the loan amount increase every month, and, as a result, I lose equity? All reverse mortgages are approved at approximately 50%+/- of the equity at the time of the loan. Interest rates are comparable to market interest rates, currently at about 5%. That means that average reverse loan adds one half of 5% or about 2 ½ % to the debt every year. Over the last 30 years, real estate appreciation has averaged 5-6%, or more per year. That means the longer you stay in your house, you may actually see a significant “Increase” in equity. In fact, this makes reverse mortgages a great part of a long term investment strategy.

If you or anyone you know think that a reverse mortgage is worth considering, or if you have any other real estate questions or concerns, please call 949-500-6365, email Frank@FrankDiLauro.com, or reach us through our website www.FrankDiLauro.com