Reverse Mortgage

Reverse Mortgage

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Reverse MortgageLooking to capitalize on its connections in the forward mortgage world, a lender this month announced the launch of its new reverse mortgage division.

Starkey Mortgage originated its first Home Equity Conversion Mortgage (HECM) about three months ago, according to new reverse mortgage division head Ken Witte, but only publicized the launch in early August.

The plan, according to Witte, is to capitalize on the 17-year-old firm’s existing forward mortgage contacts at first, educating them on HECMs and taking advantage of their relationships with key partners such as builders and real estate agents.

“As the market changes, we’re always looking to add new products and services that could benefit our clients, and certainly with an aging population, the reverse mortgage makes a lot of sense,” Witte told RMD in an interview. “Not only for our current book of business but [also] focusing on new clients.”

Starkey intends to hire a dedicated team of reverse mortgage professionals over the next few months, though Witt noted that in the near term, the company remains focused on building up its reverse infrastructure internally.

The reverse mortgage—whatever you call It, a forward mortgage or a home equity conversion mortgage or reverse mortgage, it is the last thing that your clients would ever want, and it is the first thing they need as a last resort. Such are the opposing, yet surprisingly complementary, views of what is still for many a highly controversial topic. Our mothers used to warn: all that glitters isn’t gold. It could be fool’s gold.

You’ve seen the clanging ads for the financial planning company who interviews an individual in a taxi worried about his financial future.  The interviewee says he has a life expectancy of 24 years, but only enough retirement savings for 15 years. Even with these worries in mind, adults who are spending less than the previous year continues to decline from 57% in 2009 to 29% in 2014.

One consequence of the cloud of worrying about making ends meet has been an increase in Americans over 62 taking out reverse mortgages. The number of reverse home equity conversion mortgage (HECM loans) made in each federal fiscal year peaked with the housing crisis in 2007-2009 in FY 2009 at 114,692. Loans fell off to FY 2012 at 54,822, but seem to be on the rise again.  We are currently at or above last year’s 60,091.

What is a Reverse Mortgage?

“A reverse mortgage is a loan against home equity that doesn’t have to be repaid until you move, sell your home or die. You can receive a lump sum, a line of credit, monthly payments or a combination. To qualify, you must be 62 or older. (If the home is owned jointly, both owners must be at least 62.) You can borrow an amount based on your home’s value, current interest rates, and your age.”

To apply for a reverse mortgage was easy before 2015. But that has changed for many, as new regulations went into effect in 2015 that will require individuals that opt for a reverse mortgage to have financial planner counseling.

It’s easy to Google and find the Pros for a reverse mortgage, but not as easy to get the cons. The Pros:

  • You can stay in your own home and improve your finances, assuming you have equity in your home.
  • It’s flexible. You can have a reverse mortgage tailored to your financial needs or financial planner’s recommendations
  • Low risk of default. You must keep up with property taxes, upkeep, and insurance.
  • The money you take out is tax-free.
  • The mortgage cannot exceed the value of your home.
  • No restriction on how you use the funds extracted.

The Cons:

  • The mortgage rate is adjustable. Adjustable rate loans can be expensive if rates go up.
  • A bone of contention: there are high origination fees.
  • There are no monthly payments, but the size of the mortgage compounds.
  • The interest is not deductible
  • The estate must sell the home when the mortgagees
  • There may be no equity left for your heirs.
  • The homeowner may get locked into keeping the house when a better option would be to sell and move into more affordable housing.
  • The homeowner must keep up with property taxes, upkeep, and insurance.

Here’s an example of a couple, both over 62 owning a home valued at $425,000 and two mortgages totaling 200,000. The maximum loan amount may be 48% or 204,000. That’s enough to pay off existing mortgages and save $2,000 in mortgage payments, but there would be little cash available. That would leave the couple with $24,000 in savings per year less property taxes, upkeep, and insurance.  That extra savings could mean the difference between just getting by and a comfortable retirement.

The reverse mortgage certainly is a viable option for some older Americans, especially if you are not considering moving. Others believe that a reverse mortgage is a little like a car airbag. It’s nice to know it’s there. But if it ever has to be used, the driver’s already in trouble.

8th Wonder Homes is the areas’ premier real estate solutions company.

Since our inception, we have been helping homeowners along with improving communities in every city in which we work.

Through our extensive knowledge of the business, network of resources, and years of expertise, we can assist homeowners with a wide variety of real estate problems. We pride ourselves on our reputation for working one-on-one with each customer to handle their situations.

With the ability to directly purchase homes and make cash offers, we can create an extremely fast, and hassle-free transaction.

Call us today at (515) 635-5505

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