Reverse mortgaging is becoming more and more popular among future retirees. The following are answers to common questions about these types of loans:
So, what is a reverse mortgage?
A reverse mortgage (RM) is a form of equity release. It is a loan available to homeowners of retirement age, enabling them to access a portion of their home’s equity. It’s simply a pool of money based on your value of your property and the age of the youngest borrower. If you qualify for a reverse mortgage, you can receive money in four ways:
- a single lump sum
- a monthly income for the rest of your life or for a specific time period
- a line of credit you can draw on as needed
- a combination of the options above
I always recommend that people meet in-person with their experienced loan officer to review all the specific qualifications for title, trust and property issues that may come into play.
Historically, loan closing costs have been high, however, the industry has addressed this issue with the Home Equity Conversion Mortgage Program, or the HECM Saver. The program offers a drastically reduced, upfront Federal Housing Administration (FHA) mortgage insurance and origination fee/points that can save homeowners thousands of dollars, depending on the value of the home. Make sure to get proposals from a variety of direct lenders in writing before you make decision.
What are seniors in Hawai‘i using the RM funds for?
Reverse mortgages can be used by homeowners in many ways, but from my experience there are basically two types of borrowers — people who need money to pay for basic life essentials and people who want to improve their quality of life. Most fall into the latter category. Many of my senior clients say that their kids have their own lives, and now they want to enjoy their Golden Years with travel, a remodel, etc.
Why are reverse mortgages still a misunderstood financial product?
This is a great question, and I spend a lot of my time explaining the answer. There are many reasons for so much confusion with the RM product, however, the two main reasons include the lack of experienced mortgage professionals in the marketplace and irresponsible media coverage and misinformation. My best advice is to meet in-person with an experienced and reputable reverse mortgage banker for a presentation and get a proposal of various RM products. Make sure that the loan officer walks you through a suitability process to see if the RM meets your wants, needs and concerns. Lastly, do not make a decision by talking to a loan officer over the phone. This is a very important life decision so take the time to make a wise financial decision.
Are seniors really benefiting from a RM?
According to a 2007 AARP report, 93 percent of RM borrowers surveyed said they were satisfied with their reverse mortgage and nearly 73 percent were very satisfied. Therefore, more than 9 out of 10 borrowers are satisfied with their reverse mortgage. I wish these types of stories — seniors making the most of their property and Golden Years — would make it into the news, too.
For more information, contact Percy Ihara 234-3117.