Reverse mortgages have had a negative perception until recently. The Federal Housing Administration has altered the program to the point that it can now be used as a financial planning tool and not just another loan product. It still does not negate the fact that so many misconceptions have been associated with HECM loans. However, here are some questions that can be asked to clear up any misunderstandings.
What is a reverse mortgage?
Bankrate.com defines reverse mortgage, as a home equity loan for older borrowers in order to put more equity and value into a home. Sometimes it is referred to as Home Equity Conversion Mortgage or HECM for short. The purpose of the loan is to build value into a home as well as help out with any expenses as needed.
Why are people so apprehensive about them?
Many things have been said about reverse mortgages that are not necessarily in the most encouraging light. For Sharon Falvey, Director of Sales Operations at Open Mortgage, there is really only one main reason for the hesitant approach.
“The answer is lack of proper education!” said Falvey. “Until financial planners started publishing articles on how to position a Reverse Mortgage to meet the overall goals of a retiree the biggest source for education was from well intending, but misinformed, members of the who didn’t do their homework.”
The criticisms that have been associated with reverse loans from a variety of reasons, including the accusation of borrowers being mislead by HECM advertisements. Anytime there is an inkling of mistrust surrounding a product, there will surely be tons of skepticism about it as well. That skepticism definitely becomes amplified anytime financial decisions are being made.
Who can get a reverse mortgage?
Reverse mortgages are aimed toward older adults whom are either approaching retirement or already in it. The eligible age for receiving a HECM is 62 or older, which is usually the time that most people retire. Unlike a home loan, reverse mortgage lenders do not look at a credit score but rather your history and how you pay your bills.
When should I begin thinking about reverse mortgage?
Seeing that reverse mortgages are used by older home owners, you may want to think about them when you are nearing retirement. As your main source of income begins to come to a close, you should assess the state of your finances and educate yourself on your options.
A survey conducted by the U.S. Department of Health and Human Services says adults can expect to live an additional 19 years when they turn 65. As medical technology gets better and improves the quality of life, many older citizens could possibly seek out HECM loans in an effort to enjoy some financial stability in their twilight years. A reverse mortgage is far from the “one size fits all” product. It is imperative that you consider all economic possibilities for you and your family. Reach out to a financial adviser or specialist and learn how a HECM product can help you reach your goals.