A Reverse Mortgage Makes the Golden Years Even Better
Mar 18, 2019
Many Americans are facing the wonderful prospects of their approaching retirement. In fact, the Pew Research Center estimates that 10,000 baby boomers are retiring each day. As they gear up for bucket-list adventures and adjust their budgets, more retirees are using a reverse mortgage as a tool to meet their goals.
Reverse mortgages have been offered since the late 1980s, but many people still don’t understand how they work, so we sat down with George Morales, HECM Business Development Manager for Primary Residential Mortgage, Inc. (PRMI), to find out more about them.
Morales has specialized in reverse mortgages since 2012, as a Loan Originator, sales trainer and coach. He now oversees the reverse mortgage business development at PRMI. "
PRMI: "Thank you for talking with us George. Can we start with the basics? Your title is HECM Business Development Manager. What is a HECM and what does it have to do with reverse mortgages?""
GM: "HECM stands for Home Equity Conversion Mortgage. It’s a specific reverse mortgage product, an FHA product, and is one of the most popular. The terms “HECM” and “reverse mortgage” are often used interchangeably, but HECMs are just one type. There are also proprietary and conventional reverse products as well."
PRMI: "OK, so what is a reverse mortgage?""
GM: "Reverse mortgages are loan products that let homeowners age 62 and older convert a portion of their existing home’s equity into cash to eliminate monthly mortgage payments. They can also free up additional equity as cash payments. The borrower remains the owner and stays in the home as long as they want, without the burden of the monthly payments. This can really help homeowners who are on a fixed income live the life they want in their golden years."
PRMI: "How does it work?"
GM: "It’s simple, really. Home equity is the difference between what you owe on your mortgage and what your house is worth. A reverse mortgage lets homeowners use a portion of that equity as collateral for a new loan in much the same way they used their property as collateral for their current mortgage. With a reverse mortgage though, the collateral essentially makes the payments to the bank, eliminating the need for monthly payments. And, depending on how the loan is structured, borrowers can even receive additional money as a lump sum, monthly payments or as a line of credit. Borrowers are responsible for the continued property taxes, homeowner’s insurance and any HOA fees, but a special account can be set up to ensure money is available to pay these if the borrower wants."
PRMI: "Does that mean the bank owns the home?"
GM: "No, as long as all the terms of the loan agreement are maintained, the borrower remains the owner of the property and can continue to live there as long as they want."
PRMI: "How is a reverse mortgage repaid?"
GM: "The mortgage becomes due once the borrower (and co-borrower) leave the property for good, (meaning the home is no longer their primary residence) and it’s typically repaid by selling the property. If an heir receives the home as an inheritance and wants to keep it in the family, they simply refinance it and pay what is owed."
PRMI: "So the property can still be passed down through end-of-life wishes?"
GM: "Of course. I’ve even seen times where the property was donated to a favorite charity."
PRMI: "Often retirees want to downsize their homes. Can they use a reverse mortgage to do that and still not pay a monthly payment?"
GM: "Absolutely! There are a lot of different types of reverse mortgages. The HECM for Purchase loan product allows borrowers to sell their home and secure the new mortgage as a reverse, so they can move into a house that is better for them and not take on the financial burden of monthly mortgage payments."
PRMI: "What other types of reverse mortgages are there?"
GM: "Well, we mentioned HECMs. Those are guaranteed by the federal government and are nice because the repayment amount will never be more than the house can sell for, regardless of what’s owed.
Depending on your circumstance and goals, there is a range of government-insured and conventional loans you can choose from. Some pay you a lump sum in addition to eliminating payments, some act as a line of credit, allowing you to draw additional cash as needed, some are fixed-rate loans and some are adjustable. There really is a wide array of choices. That’s one reason reverse mortgage Originators are specially trained and licensed."
PRMI: "Speaking of that, how do you qualify for a reverse mortgage?"
GM: "Qualification is based on several factors, including the amount of equity available, the age of the youngest borrower or non-borrowing spouse, interest rates and loan limits. It’s best to speak with a licensed Originator."
PRMI: "Who should consider a reverse mortgage?"
GM: "There’s a misconception out there that reverse mortgages are only for borrowers who are struggling to make ends meet, and it’s just not true. It’s better to think of them as a tool available to help meet the changing financial goals of seniors.
Many people get to retirement and realize that much of their net-worth is trapped as equity. A reverse mortgage releases the equity so it can be used for all kinds of purposes, from emergency spending to a dream vacation, to paying for a grandchild’s education, to investments. I’ve seen people use them to buy duplexes, creating a passive income source. I’ve seen them used as an emergency line of credit. I’ve also had borrowers use the money to diversify their investments. Reverse mortgages can be especially useful to cover expenses of seniors who want to stay in their home, but who may need additional care to do so."
PRMI: "What’s the number one thing people should know about reverse mortgages?"
GM: "Get the facts. These are really useful products, but there are a lot of myths out there."
PRMI: "Thank you for your time, George."
GM: "Thank you!"
If you would like to learn more about reverse mortgages, contact George Morales. He’s happy to talk about your specific situation and connect you with a licensed reverse mortgage Originator in your area. Reach George at (800) 255-2792, extension 1000326 or email him at GMorales@Primeres.com.
This ad is not from HUD or FHA and was not approved by HUD or any government agency. Consumers remain responsible for property taxes, homeowner’s insurance, and home maintenance.
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