By George A. Downey
Post-pandemic home price and interest rate increases crippled home sales and with it, mortgage volume. The need to replace lost income has attracted new buzz among lenders to add reverse mortgages to traditional offerings to offset reduced revenue.
Not another mortgage product
Reverse mortgages are different. The only common component with traditional home loans is the mortgage instrument securing the home.
Designed to serve the changing financial and lifestyle needs of aging homeowners, the objectives, terms, and responsibilities are unique.
Good for some, not for all
While the terms and objectives are designed to help you toward your financial goals, a reverse mortgage may, or may not, be a good fit. Among other factors, individual circumstances and family dynamics are important considerations.
While reverse mortgages have been relatively unknown until recently, few understand the nuances that often push potential borrowers to rely on sales representatives for information and guidance.
The obvious objective of most salespeople is to simply close the sale. Reverse mortgage sales are an exception, requiring specialized training, commitment to ethics, and a consideration for the client’s best interests.
New or less experienced sales representatives may not fully understand the complexities of determining suitability. Experience and reputation distinguish the professionals from others.
Elderly homeowners, often targets of unscrupulous sales schemes, need advice from competent experienced professionals who will learn about their needs and guide them to a suitable solution.
Reverse mortgage overview
• Potentially no monthly payment obligations. Voluntary payments are permitted but not required. Keep in mind, like with other mortgage loans, interest will accrue on the amounts borrowed. That means your balance goes up over time, increasing the amount you have to pay, and you have less and less equity in your home.
• Increased liquidity. Because it is a loan, withdrawals are received income tax free.
• Credit line growth. The undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed providing more funds for future needs.
• No maturity date. Repayment is not required until no borrower resides in the property.
• Non-recourse loan. If the balance owed on the loan is more than what the home is worth, the remaining balance is covered by the mortgage insurance paid by the borrower, not the heirs.
• Protection against real estate and/or financial market declines.
• Borrower obligations (to keep the loan in good standing) include:
• Keeping real estate taxes, homeowner’s insurance, and property charges current
• Providing basic home maintenance.
• Continuing occupancy as primary residence.
Eligibility requirements apply. HECM counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms. About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney
