| General knowledge about the concept of
reverse mortgages is often fragmentary,
inaccurate, and negative. What exactly is a
reverse mortgage and what are the pros and cons
for senior homeowners?
When this question was posed to Reverse
Mortgage expert George Downey, founder of Harbor
Mortgage Solutions in Braintree, MA, the
response was comprehensive but succinct,
offering an overview of the plusses and minuses
of reverse mortgages.
An overview of the pros and cons of reverse
mortgages A reverse mortgage, essentially the
opposite of a traditional or “forward” mortgage,
can enable seniors (62 or older) to tap into
accumulated home equity without having to face
ongoing payments. Unlike traditional mortgages
where borrowers make monthly payments, in a
reverse mortgage the cash flow is reversed, and
the lender makes payments to the borrower,
enabling borrowers to use the tax free cash they
receive in any way that they wish.
There are no minimum income, asset, or credit
qualifications to meet and no effect on Social
Security or Medicare benefits. The property must
be the primary residence of the borrower and
properly insured and maintained, with real
estate taxes kept current. As long as the
borrower continues to live in the property the
loan can never be called. Repayment is required
if the home is sold, or when the last borrower
permanently leaves the property, or passes away.
At that time, the heirs can sell, or refinance,
the property to pay off the loan.
The major downside of a reverse mortgage is
the potential expense associated with the loan.
Reverse mortgages generally are most costly when
you live in your home only a few years after
closing the loan. These loans are tied to a
floating interest rate, so as interest rates
increase, the cost of the reverse mortgage
becomes more expensive. Compared to traditional
mortgages, the closing costs of reverse
mortgages are higher since they are non-recourse
loans, which means that the amount due can never
exceed what the home is worth. Insuring this
risk away protects borrowers and their heirs but
adds to the total cost of the loan.
There are also some caveats that exist in a
reverse mortgage that might cause a problem for
some homeowners, such as maintaining the home to
a certain standard. Borrowers also cannot move
out of the property without the loan coming due.
It cannot be turned into a rental property to
gain income, instead it must be sold or
refinanced so that the loan is paid off within a
certain time period after the owners move out.
It can also be risky to take out a reverse
mortgage to provide cash for an investment.
Borrowers must be aware of the pitfalls of
assuming that an investment will make money
when, in reality, it may fail!
Downey emphasizes, “Each situation is unique.
A reverse mortgage may provide the best solution
for some for some senior homeowners and be
totally inappropriate for others. Involving
family members in the decision making process is
critical, as is the availability of sound
professional advice. Experts on Elder Care
Management and Elder Law attorneys are also
often drawn into the process to determine if a
reverse mortgage is the best solution for all
concerned, or whether other alternatives might
provide a better solution.”
Harbor Mortgage Speakers Bureau Area Councils
on Aging, Visiting Nurse Associations, home
healthcare providers, civic organizations, and
church groups are invited to contact Harbor
Mortgage to schedule an educational presentation
to learn about alternatives available to senior
homeowners, including ways to unlock the equity
in their homes.
“Use Your Home to Stay at Home” A recent
study conducted by the National Council on Aging
(NCOA) set out to develop a blueprint to serve
as a guide for policymakers as they explore the
opportunities and limitations of tapping home
equity to pay for long-term care at home. The
study found that impaired, older Americans are
struggling to live at home at a time when they
own more than $2 trillion in untapped housing
wealth.
Education is an ongoing goal, as outlined in
the NCAOA report entitled “Use Your Home to Stay
at Home - Expanding the Use of Reverse Mortgages
for Long-Term Care: A Blueprint for Action.” It
is in keeping with the spirit of this report
that Harbor Mortgage Solutions established its
free Speakers Bureau.
Once the province of a few small banks and
private lenders, the great majority of reverse
mortgages today are provided through
government-sponsored programs, namely the
HUD/FHA Home Equity Conversion Mortgage (HECM)
and the Fannie Mae Home Keeper (HK) programs.
Customized Harbor Mortgage Solutions
Specializing in conventional residential and
reverse mortgages, Harbor Mortgage Solutions,
Inc. is located at 100 Grandview Road, Suite 105
in Braintree, MA. George A. Downey, who is now
joined by his son Christopher Downey, founded
family owned and operated Harbor Mortgage
Solutions in 1978.
Assisted by a staff of experienced mortgage
professionals, Harbor Mortgage Solutions is
dedicated to providing customized service,
obtaining the best possible solution for each
individual client every time. An equal
opportunity lender licensed in Massachusetts and
Rhode Island, Harbor Mortgage Solutions is a
member of the Massachusetts Mortgage
Association, the National Association of
Mortgage Brokers, and the National Reverse
Lender Mortgage Association, strictly
subscribing to their rigid code of ethics.
Harbor Mortgage Solutions is also an Educational
Subscriber of the Massachusetts Chapter of the
National Association of Elder Law Attorneys.
For additional information on services
offered by Harbor Mortgage please call
781-843-5553 or 800-599-8700, or visit
www.HarborMortgage.com. |
