Should I do a Reverse Mortgage?
If you are 62 years or older you have or will soon ask yourself, “should I do a reverse mortgage?” I believe the answer to that question for most people in Utah is yes. I’ll identify the primary reasons my clients are doing Reverse Mortgages. I’ll also highlight the reasons for not doing a Reverse Mortgage. Along with why I’ve recommended to many of my clients that they should not do a Reverse Mortgage. Or at least not yet.
Goals for the future
Having a plan for the future is the most important question I discuss with my clients when we analyze the fit of a HECM Reverse Mortgage. If a person does a Reverse Mortgage for the wrong reasons or without a clear understanding of how the benefits are going to help provide a better lifestyle in retirement then they are setting themselves up for frustration and failure.
Usual benefits of a Reverse Mortgage
Everyone’s reason for doing a Reverse Mortgage is different. But these are some of the primary reasons my clients in Southern Utah are using Reverse Mortgages.
- Purchasing Power – By using a Reverse Mortgage, someone wanting to own a home with no payments can increase their purchasing power by 80%-300%. So, they get to live and retire in a home they own that is far better than they could have otherwise owned.
- No payments – Reverse Mortgages have no required mortgage payments. The homeowner still pays basic property expenses such as taxes, insurance, and HOAs. But by not having a mortgage payment their fixed income goes a lot further.
- Reserve Funds – For someone who has a lot of Equity a HECM Line of Credit is a good way to protect them against the unknown. Money in a HECM Line of Credit is easy to access, is non-taxable, and grows over time until it is used.
- Debt consolidation – Aside from just paying off the mortgage, a HECM can also be used to consolidate other debts which for a lot of my St George and Cedar City clients has meant they are left with zero monthly debt payments.
- Investment Strategy – The Line of Credit is great for insurance but it’s also great for investment. As mentioned, any unused balance will grow overtime at a rate equal to the interest rate and mortgage insurance rate (currently averaging around 4.5%) But some of my clients have used this to take advantage of great investment opportunities that arise such as purchasing and flipping properties.
Reverse Mortgages as a last resort
A lot of people look at a Reverse Mortgage as a last resort or something they will do if they absolutely have no other options. This is a bad strategy. Yes, Reverse Mortgages are a good life raft for someone who is a flat tire away from losing everything but the better strategy is to supplement a Reverse Mortgage with other Retirement assets and income while they still exist. By doing this retirement income and assets will last longer and in many cases will actually grow vs. not using the Reverse Mortgage until there are no other options.
Long term perspective
I usually discourage doing Reverse Mortgages for people who have just turned 62 unless they have a solid plan for the future and know they will either live in the home forever or only live in the home for 5-8 years.
A Reverse Mortgage uses the equity in the home by adding unpaid interest to the mortgage balance. Over time this can become quite expensive. If things change after 10 or 20 years and the homeowner decides to sell the home there is a chance they won’t have enough money from the sale of the old home to put a down payment on the new home. This is why I usually recommend my clients really think about waiting a few more years until they have a more solid determination about their future and whether they will be using the HECM loan as a short-term strategy or a permanent strategy.
Market Fluctuations are another aspect of this issue. Property values in Southern Utah, Utah, Nevada, and Colorado are surging but as we learned in the 2008 and 2009 Mortgage meltdown, that’s not always the case. Markets can turn unexpectedly and someone who doesn’t have the ability to wait out the recovery could be caught selling a home with very little equity remaining.
Heirs
If you’ve read my previous articles, (Your kids don’t want your house & Family is much better in person) you know I personally feel that leaving an inheritance is usually a bad idea. As parents, we’ve been trained to believe this is the American dream. We work our guts out for 50-60 years so we can leave a glorious fortune for our kids. But in reality, once we retire health and inflation rob us of our meager fortunes, and the few thousand dollars left to our kids are statistically wasted within just a few months after death. I believe the better dream is to enjoy life in retirement, spend time with our families and create a legacy of memories that will never be wasted in the same way money can be.
If you don’t agree with me and want to leave the equity in your home to your children then you need to understand how a Reverse Mortgage is going to use that equity and how much will likely be left when you pass away.
Know the details
I became a Reverse Mortgage Specialist because I saw the way I and my peers in the industry were doing a disservice to our clients by not fully understanding the product ourselves. Guidelines for Reverse Mortgages are frequently changing and the loan is very different from standard mortgages so unless a Loan Officer does a high volume of Reverse Mortgages, they do not understand the guidelines and cannot help a client develop the right strategy for the best use of the loan in their financial planning.
Make sure your Loan Officer has a sound understanding of Reverse Mortgages before you trust them with what could make your life infinitely better or frustratingly worse.
If you or someone you love is asking, should I do a reverse mortgage, call me today to find out how it could make your life better. We are currently licensed in Utah, Colorado, and hopefully soon to be Nevada.
Trevor Carlson
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
435-359-9000
www.heritagereversemortgage.com
Heritage NMLS #1497455 Trevor?s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770