Financial considerations are often a focus of marketing campaigns, and those considerations are addressed even more now, during the COVID-19 pandemic, as personal economics are taking a hit for many Americans.
While most ads today seem to be targeted to the 18-49 demographic, Boomers are the essential target for most ads regarding reverse mortgages as an instrument to consider when planning financial security, or to pay off debt, lower monthly payments or a variety of other uses.
What is a reverse mortgage?
A reverse mortgage loan is a unique type of mortgage for homeowners age 62 and older. Borrowers do not need to repay the loan until the last borrower dies or moves from the home as long as they live in the home, maintain the home in good repair, and pay their real estate taxes and homeowner’s insurance. (you can learn more by going here: https://reverse.mortgage/)
Compared to other financial resources, home equity is the most valuable asset for the largest number of older consumers. Recent figures show that home equity accounted for nearly 20 percent of all the assets held by consumers age 65 and older, according to Consumer Financial Protection Bureau’s (CFPB) analysis of the Federal Reserve Board, Survey of Consumer Finances 2013.
Home equity advantages
For the majority of older homeowners, homeownership provides affordable housing in retirement. On average, older homeowners spend a smaller proportion of their income on housing costs than do renters. In addition, many older homeowners have a potential source of savings in the equity accrued in their homes that can help some meet their financial needs in retirement. For example, homeowners can access their home equity by selling their home or by borrowing against their equity. Homeowners with an existing mortgage can do so through a cash-out refinancing either via a forward or reverse mortgage, or by taking out a second mortgage or home equity line of credit. Homeowners who no longer have a mortgage have the option of a new forward mortgage, a home equity loan, or a reverse mortgage.
Reverse mortgages are one way of utilizing the equity of a home and putting it to use without adding a refinancing or interest payment to monthly overhead. The loan is not repaid, in most instances, until the borrower dies, moves, or sells their home. At that time, the borrowers (or their heirs) can either repay the loan and keep the property or sell the home and use the proceeds to repay the loan, with the sellers keeping any proceeds that remain after the loan is repaid. The loan may have to be repaid if the borrower has to move into an assisted living facility or if they move in with a family member, and a property sale can pay off the loan and even provide additional equity.
In a reverse mortgage, the borrower keeps the title to the home. And is responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses.
Homeownership cash available
Investopedia reports that reverse mortgages can provide much-needed cash for seniors whose net worth is mostly tied up in the value of their home. That cash can be determined by interest rates, as borrowers with the lowest rates will typically receive more proceeds and overall benefits of their reverse mortgage.
Before any of these loans can be secured, due diligence is necessary. As with any loan, there are pros and cons to the instrument so investigation is wise. In fact, it is required.
Counseling required by HUD
The federal government requires that all reverse mortgage borrowers receive counseling before they take out a HECM loan. The National Council on Aging reports that counselors are trained and approved by HUD to provide unbiased information and to discuss alternatives to a HECM, the costs associated with the loan, the various products and payment plan options, and much more.
The counseling session equips the borrower with the knowledge needed to make an informed choice. Often there is a fee for this counseling, usually payable at the time of the counseling. In some circumstances, the borrower may pay the fee at the time of the closing, using funds from the reverse mortgage.
What is reverse mortgage counseling?
The counseling on a reverse mortgage is an independent session conducted by a third party. It is a requirement for all reverse mortgage loans. The purpose of the counseling is to ensure that all borrowers and spouses understand what a reverse mortgage is and what their obligations entail.
Adhering to HUD guidelines, the mandatory reverse mortgage counseling must include the implications of and alternatives to a reverse mortgage from a HUD-approved HECM counseling agency. Agencies are required by HUD regulations to provide the borrower with a list of reverse mortgage counseling agencies.
The list must include all HUD-approved counseling intermediaries that can provide telephonic counseling, as well as five (5) counseling agencies within your local area, state or both, with at least one of the local agencies located within a reasonable driving distance for the mandated (pre-Covid) face-to-face counseling.