Reverse Mortgage Q&A With Dr. Trawinksi

aarp reverse mortgage loanReverse mortgage loans may be beneficial for homeowners age 62 years and older who have sufficient equity in their homes. Borrowers can utilize the reverse mortgage loan funds any way they wish, whether it be for medical bills, home improvements, or home health care.

As with any financial decision, it is important to discuss your financial needs and goals with a trusted advisor.

The following is taken from an interview with Nora Eisenhower from the Office of Older Americans at the Consumer Financial Bureau and Dr. Lori Trawinksi from AARP’s Public Policy Institute with David Martin Davies with the Texas Public Newsroom and focuses on some of the more common questions people have about reverse mortgage loans.1

Question: What is a reverse mortgage loan and how can it benefit seniors?

Answer: “It’s the reverse of a mortgage…People should understand that it’s a way to access equity in one’s home that’s built up over years to help you stay in your home”, says Nora Eisenhower, assistant director of the Office of Older Americans at the Consumer Financial Protection Bureau.  Eisenhower also reminds potential borrowers that they will have to continue paying property taxes and homeowners insurance.

Dr. Trawinski reminds consumers that if you’re in a condominium or a townhome, then you have to pay HOA fees and maintain your home.  It’s also important to remember that a reverse mortgage is a loan.

Question: How large is the reverse mortgage market? Does it apply to all seniors?

Answer: According to Dr. Lori Trawinski from the AARP’s Public Policy Institute, there have been approximately 750,000 loans issued since the reverse mortgage loan program was implemented in the late 1980s. Today, reverse mortgage loans are still a fairly small sector in the banking industry. Dr. Trawinski says that only about 2% of those eligible actually have a reverse mortgage loan.

Question: I’m house-rich but cash-poor. Will a reverse mortgage loan work for me?

 Answer: Potentially, yes! However, every situation is different.  According to Ms. Eisenhower, a reverse mortgage is most appropriate when consumers have a good amount of equity in their home, and when they have looked at all resources available to them, i.e. social security, pension and other assets.

Considering a reverse mortgage is only a piece of the puzzle and it is a very individualized assessment process.  Make sure you understand your financial needs and goals thoroughly.

Question: I want to sell my home in a couple years. Should I get a reverse mortgage loan?

Answer: Dr. Trawinski explains that reverse mortgage loans are typically best utilized for seniors who have significant equity build up in their homes and who intend to continue living in their homes for many years.

The loan becomes due when the last borrower no longer lives in the home. If a borrower moves after only a couple years, they may not realize the full financial benefit of the reverse mortgage loan due to the upfront costs of taking the loan.

Question: Is a reverse mortgage loan more expensive than a traditional mortgage?

Answer: Dr. Trawinski states that reverse mortgages have high upfront mortgage insurance premiums (MIP’s).  In addition, interest rates are typically higher than with a traditional mortgage.  Discussing your financial situation and the amount of equity in your home with a reverse mortgage lender and your financial adviser can help you decide if the benefit is worth the cost.

Question: Will my heirs get my house when I pass away?

Answer: When the last borrower passes away or no longer lives in the home, the loan becomes due. Dr. Trawinski explains the process of what happens to the home when the borrower passes away, “the house will pass to the heirs…as specified in the will.

But at that time, the loan becomes due and payable. So if the heirs have the money to pay off the loan, they can keep the house. If they don’t have the money to pay off the loan or they don’t want the house, they can sell the house and if there are proceeds left over after the sale of the house, the heirs are entitled to them.”

Question: Do all lenders provide the same reverse mortgage loan?

Answer: Ms. Eisenhower indicates that it’s important to shop around.  She advises consumers that the more you understand your options, and the more know about how a reverse mortgage works, the better off you’ll be.  It’s also important to find a lender that is able to answer all of your questions and can provide you the information you need to make the decision that’s best for you.

If you are interested in a reverse mortgage loan to supplement your income, it is important to know that you must be at least 62 years old, have sufficient equity in your home, not be delinquent on any federal debt, and live in a single family home, a two to four unit home where you occupy one unit, or an FHA approved condominium or manufactured home.

The amount of funds you can receive is based on your age, current interest rates and the lesser of the home’s appraised value, sale price or the maximum lending limit. For more information about HECM loan eligibility, contact a reverse mortgage advisor at 800-976-6211.