When senior homeowners understand the power that a reverse mortgage offers them, they often say to
me “Wow, this is a no brainer.” Indeed it is. Here are the 3 main reasons senior homeowners choose a
1) Equity Protection. When a borrower closes on their reverse mortgage, approximately half of their equity is protected from any real estate market correction. So, if a senior homeowner is
concerned about losing equity in a downturn, getting a reverse mortgage provides equity protection.
2) Return on Investment. For those who own their home outright, they have hundreds of thousands of dollars sitting there earning 0%. With a Reverse Mortgage Line of Credit or RMLOC they can earn 3-5% compound interest, guaranteed as long as they live in the home as their primary residence 6 months or more a year, pay the property taxes, homeowners insurance and any other fees such as HOA, etc.
3) Transfer Responsibility of Repayment. A reverse mortgage is a non-recourse loan. What that means is the lender has no recourse against the borrower to collect the money due. The home becomes the sole party responsible for repayment for the loan. Because most reverse mortgages come with mortgage insurance, the FHA is guaranteed to be made whole, and neither the borrowers nor their heirs will ever receive a bill if the property ends up overleveraged as the mortgage insurance will make up any shortfall.
Bonus: The #1 way senior homeowners utilize a reverse mortgage is to eliminate their mandatory monthly mortgage payment. A payment is not required with a reverse mortgage, it is optional. Payments are set aside from equity each month and once the last homeowner moves out, the loan becomes due in 6 months, or if more time is needed to sell or refinance, two 3 month extensions can be granted.
Bonus 2: Another benefit senior homeowners with a lot of equity enjoy is the flexibility of a reverse mortgage. Your home can pay you 3 ways: lump sum, monthly installments or a line of credit. Also, when the money is withdrawn it is tax-free, as loans are not taxed.
Many senior homeowners have said to me “this sounds too good to be true.” But it is true. The program
has been overseen by HUD and administered by the FHA since 1988. Over 1 million people have taken
out a reverse mortgage. AARP did a survey in 2007 of seniors who had a reverse mortgage, 94% were
satisfied or very satisfied.
For those who want to remain at home, retain ownership and title, and maintain their independence, a
reverse mortgage may be an answer to their prayers.