New look at reverse mortgages

Solano Real Estate Scene: Jim Porter

Article By: Jim Porter – November 12, 2016

According to an article on cnbc.com, financial planners are getting on board with reverse mortgages.

In simple terms, a reverse mortgage allows homeowners who are older than 62 to improve their financial standing by factoring home equity into their retirement plans. Reverse mortgages will allow for distribution in three ways: lump sum, monthly installments or line of credit, or a combinations of these options.

The lump sum: The consumer can borrow a lump sum to pay off their existing mortgage or remodel their home or pretty much do anything they wish with the money available to them based on their age and value of the home.

The monthly installments: The consumer can simply set up a monthly distribution if they don’t need a lump sum. This monthly amount can be adjusted, and if ever a large amount of cash is needed, a lump sum may be requested from the loan servicer.

The line of credit: This program allows the consumer to limit their borrowing and reserve their available funds for a later date in life. For example, the consumer can take a $25,000 lump sum at the time of closing the reverse mortgage and could have a line of credit with several hundred thousand dollars that can be borrowed when needed later in life.

Each situation is unique to each individual and the amount of available funds depends on the age of the youngest borrower (or eligible, nonborrowing spouse), the current interest rates, property value and payoffs.

I have been analyzing senior citizen financial statements since 1979 and I can clearly see oftentimes why the reverse mortgage is becoming a valuable and popular tool for many folks of this generation and even the baby boomers. People cannot afford to retire on Social Security and unless they have a solid government pension, most people just don’t have enough put away in their IRAs and their 401(k)s to live comfortably in retirement.

Financial planners who were doubtful are now on board with the program for some people. The key for consumers is to discuss their personal circumstances with a qualified loan officer who understands debt management. After this evaluation I always suggest a consultation with a certified financial planner and/or a lawyer who specializes in estate planning and trusts.

A consumer cannot apply for a reverse mortgage prior to attending a HUD counseling session that the consumer must pay for out of their funds. As I always say, “Look before you leap.” The HUD counseling does have a cost. However, investigating your options is a wise strategy for senior citizens.

Borrower(s) are responsible for property taxes, homeowners insurance, maintenance of the home, and the home must be the primary residence.

This is a loan that must be repaid.

By way of disclosure, this information is not from HUD or FHA and this column was not approved by the department or a government agency.

Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.