Reverse mortgages: If you had a magic wand

By Alain Valles

Since 1987, Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, have been a viable option for hundreds of thousands of homeowners aged 62 and older. Over the years there have been many changes to this loan program, with the goal always being to ensure a reverse mortgage is a long-term financial housing solution. Most recently, the guidelines added a Financial Assessment which assesses a person’s “willingness” and “ability” to pay their real estate taxes and homeowners insurance — both requirements for a HECM.

As reverse mortgages become a bit more cumbersome to obtain, with more documentation required, I hope pre-retirees and retirees don’t lose track of the big picture. Early in the process, I always ask a potential client, “If I had a magic wand, please paint me a picture of how you would like your next chapters of life to look in an ideal scenario.” This simple but deep question often elicits a pause, a sigh, a glance out the window and then, in a wistful tone, the person starts to share his or her wish list.

For many, the goal is to get out of immediate financial pain. Common needs are to eliminate an existing mortgage or home equity payment, increase monthly cash flow, pay off high interest credit cards, pay real estate taxes, or complete a needed home repair.

Sometimes there is a health crisis or an adult child in need of money. These are all valid reasons to inquire about a reverse mortgage.

Equally rewarding is when the immediate needs can be solved while also meeting longer term goals such as remaining financially independent, having cash reserves for life’s unexpected challenges, helping the grandchildren and just having a little bit more money to enjoy life. The goal is to thrive, not just survive.

But the worst thing you could do is to get excited about the benefits of a reverse mortgage, only to find out later that you don’t qualify for one. The lending parameters are based on your age, home value, income level, and creditworthiness. In general the approval process is more lenient than a traditional mortgage and there are options for those in challenged situations.

Alain Valles, CRMP and president of Direct Finance Corp., was the first designated Certified Reverse Mortgage Professional in New England. He can be reached at 781-724-6221 or by email at av@dfcmortgage.com Additional articles are archived at www.fiftyplusadvocate.com.