Posted by Jose Herrera
Signal Staff Writer
Life is full of experiences – work, finding love, paying taxes, staying healthy, starting a family, and much more. At a certain age, it’s time to relax and enjoy life and loved ones as much as possible.
But how does someone over 60 experience their full life when they may be retired or may not have family support to spend their remaining years carefree?
Financial advisors have an option: a reverse mortgage.
What is a reverse mortgage?
The Home Equity Conversion Mortgage, also known as a reverse mortgage, insured by the Federal Housing Administration, was enacted in 1988 by former President Ronald Reagan.
According to Steve Schaffer, a reverse mortgage advisor who works for American Family Funding, it is a mortgage for seniors aged 62 and older.
“It’s a way for them (seniors) to access the equity in their home, pay off any existing mortgages they may have to eliminate the monthly mortgage payments, and top up their retirement,” Schaffer said.
In addition, when a person takes out a reverse mortgage, they don’t have to make a monthly mortgage payment – unless they want to, he added. A homeowner would still have to pay property taxes, pay home insurance, and if they lived in a community of owners they would also have to pay HOA contributions.
“You have to maintain the property, which is what any responsible homeowner would do,” said Schaffer. “The big key is that you don’t have to make that monthly mortgage payment, you just accrue the payments that would have been paid and you end up paying the full mortgage payment when it’s due and payable when you leave home permanently. ”
So if a person lived in their home for 10 or 15 years and then decided to move or leave their home, the reverse mortgage will become due and payable at that point, he clarified.
Schaffer, himself a senior, has around 10 years of experience advising clients on reverse mortgage issues. Prior to that, he spent 20 years helping people through nonprofits such as the United Way, the Music Center, and the American Red Cross.
“You needed someone to work with seniors,” said Schaffer. “I am aware of the problems and problems that people can face in retirement.”
Who Should Consider a Reverse Mortgage?
Jerry Citarella, a financial advisor at Prosperitas Financial, is helping clients through the reverse mortgage process. He has an extensive background in helping people with their finances.
“I look at my clients’ real needs and see what other options, if any, are available to provide them with an income or a one-off cash amount,” said Citarella. “We have to look at the whole situation and have a conversation about what their priorities are.”
According to Citarella, many people are against reverse mortgages because they don’t want to take the equity out of their homes.
“But the reality is that if you want to leave the house to your children, you should take out a reverse mortgage because you don’t have to pay for it,” said Citarella. “It’s just a math problem. If you need the money and have the money in your home, one of the most efficient ways to withdraw money is (a reverse mortgage). “
Benefits and Consequences of a Reverse Mortgage
Schaffer and Citarella agree that the benefits of a reverse mortgage can improve an individual’s quality of life.
For example, if someone opts for a $ 300,000 reverse mortgage and their home is worth $ 600,000, they won’t have to make payments every month.
These payments are delayed or just added so that all of the interest comes on top, Schaffer explained.
“That’s the key, it gives you flexibility,” said Schaffer. “Most people don’t make the monthly mortgage payments, so their credit grows over time. When they leave their home, they sell their home and use the sale to pay off the existing reverse mortgage balance with no further excess. “
Both financial advisors said that a homeowner needs at least 50% of the equity in their home before considering a reverse mortgage – anything else could risk the chance of paying off the reverse mortgage in due course.
“The point is, the loan builds up over time. To do this, there must be enough equity in the home, ”said Schaffer. In other words, you use the other 50% of the equity to account for the interest that has been added over the years. If you hold it long enough, there will still be enough equity in the house to pay off the reverse mortgage. “
A reverse mortgage could offer a monthly addition alongside social security benefits or additional financial assets like stocks or other investments, according to Schaffer.
“I think a lot of people just have negative feelings about (reverse mortgage),” said Citarella. “I think it makes sense to more people than the number of people who end up doing it. And after a thorough analysis, I would say to anyone: ‘Don’t be afraid of it.’ You should take a look at it and see if the math makes sense. Talk to people you can trust about it. “