National Advantage Real Estate Service
328 E. Lincoln Highway (Rt. 30)
New Lenox, IL 60451
What CRS needs to know about reverse mortgages? By Gwen Moran
When Debbie Henderson’s parent’s retired, they wanted to live out their golden years in the home where they had raised their family. Their fixed incomes, however, didn’t keep pace with the rising cost of living, and they found themselves struggling to make ends meet. That was when Henderson gave herself an education in reverse mortgages.
As a broker with Coldwell Banker Andrews in Nashville Tenn., Henderson, a CRS with 12 years of experience, had heard of reverse mortgages, but she didn’t fully understand the ins and outs. After all REALTORSâ are more often involved with the sale of a property than in finding ways for the resident to remain there.
“It was a perfect solution in [my parents] case,” says Henderson. “They got a payment every month, and it let them stay where they wanted to be.”
Over the past five years, more than 300,000 reverse mortgages have been originated in the United States, tapping some of the estimated $4.3 trillion of equity that Americans over 62 collectively have in their home, according to the National Reverse Mortgage Lenders Association/Hollister Reverse Market Index. Although that might seem like an impressive number, it’s actually less than 1percent market penetration.
Facts in Reverse
Unlike the conventional model, where individuals borrow a fixed amount of money over a period of time with an interest rate and repayment terms, reverse mortgages are based on a home’s equity and pay a sum of money to the borrower. The reverse mortgage eliminates any current mortgage payable on the home and, instead, pays a lump sum or a fixed monthly amount to the borrower, which can be used for living expenses, medical care, vacations- just about anything.
Although there are no credit requirements for a reverse mortgages, there are some restrictions. First everyone on the mortgage note must be age 62 or older, and they must occupy the home as a primary residence. The house has to pass an inspection, and if repairs need to be made, they’re usually done and paid for from the proceeds of the mortgage. There are several types of reverse mortgages. The most widely known and used is the Home Equity Conversion Mortgage (HECM), backed by the federal government through the U.S. Department of Housing and Urban Development (HUD). More than 90 percent of the reverse mortgages are HECMs, which are generally less expensive. Reverse mortgages are also available as private loans through banks and other companies and are generally more expensive. Jumbo mortgages above The Fannie Mae threshold of $417,000 are offered through private lenders and are not backed by HUD. Borrowers applying for a HUD backed product need to go through a counseling program administered by certified reverse mortgage counselor to ensure that they understand the terms of the program.
The bank makes money on the reverse mortgages because interest accrues on the amount that they paid out, but the fixed payment to the borrower never changes, even if she stays in the home beyond the time when the equity runs out, says Tyler D Kramer, a partner in Kramer, Kendall & Benson, LLC, a Colorado Springs, Colo., law firm. Kraemer is the co-author of The Complete Guide to Reverse Mortgages and an advisor t6o the Pikes Peak Association of REALTORSâ. When borrowers move or die, the loan needs to be repaid, which can be done through selling the home, including to heirs who may wish to keep it in the family. Regardless of how long the individual stays in the home, the equity borrowed and the interest accrued can never be greater than the value of the home. And, of course, taxes, utilities and other property-related expenses still need to be paid.
Going in Reverse
But are reverse mortgages a good idea?
“It’s never a simple ‘yes’ or ‘no,’” says Kraemer. “We break it into three Ls: liberty, legacy, and lifestyle. Liberty means freedom: lifestyle means what you’ve experienced and what you want to experience during retirement; and legacy is what you want to be remembered for.”
There are mixed opinions about when to get a reverse mortgage. Carolyn Warren, a Bellevue, Wash., mortgage consultant and author of Mortgage Rip offs and Money- Savers: An Industry Insider Explains How to Save Thousands on Your Mortgage Refinance, says that closing costs are expensive-ranging from $7,500 to $12,000 – and that number of factors can affect the cost significantly. And age and the amount of equity borrows have in their home, the younger they are when they apply for the mortgage, less they’ll qualify for. Conversely, if borrowers wait too long, the high closing can make the reverse mortgage, too costly to make sense and it might be better, financially, to sell the home.
“Don’t look at it before you’re 75,” says Steve Cramer, CRS, broker-owner of Exit One Realty in Denver who has taught SRES courses for the past eight years. “Before that, you’re not going to get much out of it. You have to be in the house at least five years for it to make sense.” Henderson’s parents tapped their equity when they were in their 80s.
Moreover, while reverse mortgages might seem like a natural solution to living on a fixed income, there are times when it is a better idea to sell the house, says Kraemer.
“Reverse mortgages can be a good idea if the person wants to stay in the house. But you have to look at the whole picture,” he says. “If they have family in another location, it may make more sense to sell the home and move closer to the family. It may also be less expensive to sell the home and live off the proceeds from the equity.” He says it is a good idea for potential borrowers to speak with a financial adviser to evaluate their personal situation.
Agents in Reverse
It might seem like recommending a reverse mortgage to a potential client is Tanta-mount to taking money out of your own pocket, says Cramer, but that is not the case. “If you look at it in the short term, you might be losing a sale. But if you look at what you’re in business for- providing service to your clients- what you’re doing is building relationships.”
Henderson agrees, saying that reverse mortgages can be a useful tool in helping older people stay in their homes longer. The goodwill that develops from looking out for their best interests can extend to family members, attorneys, financial advisors and others involved with the borrower’s affairs. That can be much more valuable over time than a one-time deal that is not in the client’s best interest- especially when the time does come to sell the borrower’s home.
Hello, I'm Eleanor Nastepniak of National Advantage Realty
in New Lenox, Illinois.
I'm committed to providing the highest level of service possible to my clients. I always try to stay educated on happenings in the market so I can provide the best professional advice and counsel.
I love working with both buyers and sellers and I am dedicated to helping my clients navigate the markets smoothly and successfully.
Homes for sale in the Lincoln way area - Joliet IL 60431 60432 60433 60434 60435 60436 - New Lenox IL 60451 - Frankfort IL 60423 - Rockdale IL - Mokena IL 60448 - Manhattan IL 60442 - Orland Park IL 60462 60467 - Tinley Park IL 60477 - Plainfield IL 60544 - Elwood IL 60421 - Wilmington IL 60481 - Homer IL - Lockport, Illinois 60441 - Romeoville IL 60446 -Crest Hill IL - Shorewood IL -
For Web Support Contact Doug Toll