Reverse Mortgages

The reverse mortgage is the single most flexible and adaptable financial product in America! It is also the most commonly misunderstood. Too many people are paralyzed by the questions and misinformation and don’t take advantage of this product when it could help save their retirement.

Frankly, if you are over 62 and don’t have a paid off home, The Home Equity Conversion Mortgage) HECM is an option that you must explore. Even if you have a paid off home, it may be worth putting one in place for the future.

The questions & conversations about HECMs are too long to cover. Here is the short list:

Positive things that are true about Reverse Mortgages:

  1. You can make normal payments on it and it operates like a standard mortgage does. Your payment reduces the balance.
  2. You also can just make an interest only payment every month. In this case, your balance would stay the same, not rising or falling.
  3. You can make no payments whatsoever. In that case, the monthly interest is added to your loan balance and nothing else happens.
  4. Unlike a regular (forward) mortgage, if you choose not to make a payment, there is no problem or risk of foreclosure!
  5. You may be able to select an reverse mortgage program that will allow the money available to you to INCREASE over time.
  6. Unlike a Home Equity Line of Credit (HELOC) which is the most common way to access home equity, a Reverse Mortgage cannot have access to funds taken away due a drop in home value or other market conditions.

Negative things about Reverse Mortgages that are False

  1. The bank owns/takes your home! The fact is that the Reverse Mortgage does not have to be repaid until the homeowner leaves the home as their primary residence.
  2. Only broke or “cash strapped” people get a Reverse Mortgage. This is how the Reverse Mortgage industry markets for “scale”. They are trying to get people to phone into a call center and have one minute on TV to do it, late at night. The fact is, that with proper planning it’s the strongest financial tool you may have for retirement.
  3. It’s easier to get a HELOC. No. It’s not. Both HELOCs and new forward/standard mortgages depend on income and must be paid every single month. Reverse Mortgages depend on the equity in the house and NOT your income. They also don’t require a monthly payment, ever.
  4. My equity is lost when I am gone! Remember that equity is the difference between what you owe and the value of the home. For example if an estate sees the house valued at $300,000 and the mortgage balance is $200,000 then the equity is $100,000. That is the same if the mortgage is a standard/forward or a HECM/Reverse.
  5. My kids won’t get the house! Well that is kind of true actually. But consider, if you get a mortgage or a HELOC and can’t make the payments, they won’t get the house because you’ll lose it to foreclosure. If you sell the house to access the equity for living expenses, they won’t get the house because you cashed it out. Ultimately, if you are going to access the equity for living expenses, no matter how you do it, the kids won’t get the house. Honestly, your kids don’t want the house. They want you to have a comfortable lifestyle today.

The bottom line is that a reverse mortgage (Home Equity Conversion Mortgage) is a tool that when deployed smartly can solve many retirement problems. We can help you learn more about that tool, figure out if it is right for you and help you put it safely in place if it is.