By Alain Valles, CRMP, Direct Finance Corp.
Reverse mortgages have helped tens of thousands of older homeowners avoid serious financial difficulties by converting illiquid home equity into available tax-free cash. Recent changes in this government-insured loan program have helped to significantly reduce the cost while also strengthening protection for the borrower.
Though reverse mortgages were first introduced in 1987, many people still carry misguided ideas about what a reverse mortgage is and how it works. Here are five common misconceptions about reverse mortgages.
- “I will lose my home.” With a reverse mortgage you retain full control and ownership of your home. As long as you continue to pay your real estate taxes, homeowner’s insurance, and maintain your property you may remain in your home for the rest of your life. You can sell your home at any time with no prepayment penalty.
- “I won’t qualify because I have very little income or challenged credit.” New reverse mortgage guidelines offer qualified homeowners in these situations the ability to have the lender pay ongoing real estate taxes and property insurance from available loan proceeds for the lifetime expectancy of the borrower.
- “I can’t afford to make monthly payments on a reverse mortgage.” The unique feature of a reverse mortgage is there is no requirement to ever make a monthly mortgage interest payment. This is considered the “magic” feature of a reverse mortgage because you may receive a lump sum amount of cash, a monthly check for life, or a line of credit to be used if ever needed, all with no monthly payment for as long as you live in your home.
- “I won’t qualify because I have a mortgage on my home.” There is no requirement for you to own your home free and clear. Many seniors currently have a mortgage. A large percentage of those people are struggling to make the required monthly payment, which is impacting their quality of life. The tremendous advantage of replacing that debt with a reverse mortgage is the significant increase in monthly cash flow which will hopefully reduce financial stress.
- “Only someone who is ‘cash poor’ needs a reverse mortgage.” Nothing could be further from the truth! Even if you have no pressing need for cash, a reverse mortgage is a credible estate planning tool that can be used to protect against unexpected life events such as a health crisis or emergency home repair. Having a reverse mortgage line of credit in place gives one the peace of mind of being prepared for the unknown.
A reverse mortgage is not for everyone. But for many qualified homeowners it is an excellent way to access the equity that has built up in your home, without taking on additional monthly debt payments. There are strict federal and state guidelines and protections built into reverse mortgage programs, and you are encouraged to seek information from a trustworthy and experienced reverse mortgage professional.
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. Archives of articles from previous issues can be read at www.fiftyplusadvocate.com.
