Confused About Reverse Mortgages?
Reverse mortgages can seem difficult to understand. With both pro and con opinions stated in very strong terms by knowledgeable people, it’s hard to decide if they are a tool that you should use or avoid.
This month, we interviewed Scott Chamberlain, Retirement Mortgage Specialist with Mutual of Omaha Mortgage, to delve into information about reverse mortgages and when they might or might not be an appropriate choice for senior homeowners. Scott lives in Tellico Village, is an expert in the mortgage industry, and specializes in working individually with people in the area on reverse mortgages.
MV: Tell our readers a little bit about yourself and why you started your reverse mortgage business.
Scott: I started in the mortgage industry in 1982. When I retired, I moved to Tellico Village. After a short time, I flunked retirement and decided to get back into the business world. Now that I am a senior citizen myself with so many years in the mortgage industry, the Reverse Mortgage program was a natural progression. This is a powerful program that has evolved over the years, and my goal is to be an ambassador to get the facts to my fellow neighbors.
MV: Tell us about your business philosophy and why people in this area might want to do business with you?
Scott: I like to work with my customers face to face to make sure they completely understand all aspects of this important retirement tool. I’m not big on technology for communicating information to people. I also attend every one of my closings to make sure what the customer requested is delivered, so I always assist the closing agent in explaining this unique mortgage. I am also a Retirement Mortgage Specialist with Mutual of Omaha Mortgage, one of the most established and trusted companies in the industry.
MV: Can you tell us about reverse mortgages and how they work?
Scott: Sure; they seem to be a bit complex! But like anything, when explained in simple terms, it’s not hard to figure out if it would be of benefit to you as a homeowner. The reverse mortgage was originally developed by the Department of Housing and Urban Development and signed into law by then President Ronald Reagan in 1988, to assist senior citizens that were living on a fixed income that had their homes paid but were struggling with extra living expenses.
The only options for seniors up until this time were to get a loan, which was impossible to repay on a limited income, or sell their home and relocate. The reverse mortgage is a program that advances a portion, not all, of the equity in your home with no monthly payment required for as long as you live in the property, pay property taxes, keep homeowner’s insurance on it, and maintain the home in generally good condition. You can access your money in four ways: cash at closing, a line of credit, monthly disbursements, or select a combination of the previous three.
Now, the program has added a purchase program for those that want to downsize for a more accessible living space. There have been many positive changes through the years since 1988.
MV: Tell us about why people should consider a reverse mortgage.
Scott: The reverse mortgage, at one time, was considered as a last resort type loan, however with the constant evolution of this product, it has become a very important retirement tool. It is no longer just for refinancing your existing home, but currently offers a purchase option as well as providing a vehicle to manage retirement funds during a down market.
For homeowners with medical issues, it can provide a line of credit option that allows people to stay in their home as long as possible. For homeowners with cash flow issues, this option releases funds that can be accessed in monthly payments or available with a line of credit that can be received when needed. The term house rich but cash poor better defines this type of homeowner.
With people living longer than ever, the older generation is concerned with, “Will I outlive my retirement funds?” A reverse mortgage can allow you to convert equity for a practical use.
MV: Can you give us some sample situations where a reverse mortgage has helped some of your clients?
One good example is that of a widowed woman. With the loss of her husband’s income, she was starting to fall behind on her mortgage and other bills. Fortunately, she had enough equity in her house to get a reverse mortgage. It paid off her old mortgage and her other fixed monthly debts with a little extra cash to have in the bank for emergencies. For her, it was a great option to have at her disposal.
Another good example is that of a husband and wife who have social security income and a small monthly pension, but the husband still needs a part-time job to live comfortably. The unexpected happens. The husband is hurt and cannot continue to work. They obtained a reverse mortgage and paid off their home loan and bills. This reduced their monthly debt by $700 and eliminated the need for a part-time job.
A final example is a husband and wife living on both their SSI and their IRAs. During a bear (down) market, they saw their investment portfolio shrink since much of it was in the stock market. By accessing the equity in their home, they did not have to liquidate their accounts until after the market recovered. This kept their investments growing instead of needing to withdraw funds at a loss. Also, another benefit was when they accessed the money from their reverse mortgage, it was tax free. (Always consult your financial advisor for options.)
MV: What are some general things people should know about reverse mortgages?
Scott: The most important things homeowners should know about this program are:
- You are not giving your home to the government.
- You can sell and move should you wish in the future.
- You don’t have to qualify with income and credit scores like traditional mortgages.
- You can still pass your estate to your family.
- You do not have to make any mortgage payments – ever.
- The funds you receive do not count as taxable income.
- Your home does not have to be free & clear.
- You can never owe more than the value of the home.
- You need to be at least 62 years old, have enough equity to pay any liens against the home, and currently occupy the home.
MV: What are some situations where a reverse mortgage might not be a good idea?
- If you do not have equity in your home, unfortunately, this program won’t work for you.
- If you are planning on moving in the near future, the closing costs for the reverse mortgage would take away from your equity and you might not have enough time to receive the benefits of the mortgage.
- If your family has agreed to keep your home for future heirs, you would not want to put this or any type of mortgage on the home.
I know homeowners still have a lot of questions about this program; I am here to answer all of your questions and help you decide if you can benefit from a reverse mortgage. Give me a call and I will be happy to guide you through this sometimes confusing process.