Why Do People Avoid Reverse Mortgages?
Mathius Marc Gertz MBA, AFC®, CAPS
Since President Roosevelt's presidency in the 1930s, Congress has passed a steady stream of social legislation that mostly benefits people in the middle and lower economic levels. The Social Security Act of 1935 is the most well-known law from that era. We were assured that social security would "solve senior poverty."
By 1955, Congress realized that Social Security would not be able to meet its goals. So, with the support of the IRS, they enacted legislation to encourage Americans to save for retirement and supplement the meager benefits provided by Social Security. This is where the IRA, Keogh, SEP, and 401k plans, which are popular among most Americans, originate. The Home Equity Conversion Mortgage (HECM) programs were simply one component of the ongoing federal social legislation. In turn, the HECM program has a mixed reputation. Why?
In the 1960s, some mortgage companies thought of a new type of loan they called a "reverse mortgage." Under their plan, you gave the lender the title to your home. The lender allowed you to reside in your home for the rest of your life, paid your mortgage, and provided you with a monthly income for the rest of your life. When you and your spouse died, the lender owned the house. This was a good option for some people who didn't have enough income to live on, but there was a catch.
Starting in the mid 1970’s, these reverse mortgage homeowners began to pass-away and that’s when many of their grown children found out for the first time that they weren’t going to inherit the home. There were big articles in the newspaper about it. Columnists, like Ann Landers, wrote articles about senior abuse. There were lawsuits, inquiries, congressional investigations and lots of negative press.
Almost all of these "reverse loans" had been paid off by the early 1980s. However, Baby Boomers and their children now believe that anything including the phrase "reverse mortgage" is negative. The only thing these 1960s schemes and the present ones, which didn't become permanent until 1998, have in common is the phrase "reverse mortgage." They don't have anything else in common.
It's important to point out that HECM loans, like IRA, Keogh, and 401k plans, are a piece of federal social legislation. Despite being passed into law in 1988, they only became official in 1998. They are simply another tool that can help you plan for your retirement.
By 1955, Congress realized that Social Security would not be able to meet its goals. So, with the support of the IRS, they enacted legislation to encourage Americans to save for retirement and supplement the meager benefits provided by Social Security. This is where the IRA, Keogh, SEP, and 401k plans, which are popular among most Americans, originate. The Home Equity Conversion Mortgage (HECM) programs were simply one component of the ongoing federal social legislation. In turn, the HECM program has a mixed reputation. Why?
In the 1960s, some mortgage companies thought of a new type of loan they called a "reverse mortgage." Under their plan, you gave the lender the title to your home. The lender allowed you to reside in your home for the rest of your life, paid your mortgage, and provided you with a monthly income for the rest of your life. When you and your spouse died, the lender owned the house. This was a good option for some people who didn't have enough income to live on, but there was a catch.
Starting in the mid 1970’s, these reverse mortgage homeowners began to pass-away and that’s when many of their grown children found out for the first time that they weren’t going to inherit the home. There were big articles in the newspaper about it. Columnists, like Ann Landers, wrote articles about senior abuse. There were lawsuits, inquiries, congressional investigations and lots of negative press.
Almost all of these "reverse loans" had been paid off by the early 1980s. However, Baby Boomers and their children now believe that anything including the phrase "reverse mortgage" is negative. The only thing these 1960s schemes and the present ones, which didn't become permanent until 1998, have in common is the phrase "reverse mortgage." They don't have anything else in common.
It's important to point out that HECM loans, like IRA, Keogh, and 401k plans, are a piece of federal social legislation. Despite being passed into law in 1988, they only became official in 1998. They are simply another tool that can help you plan for your retirement.
Just The Facts...
Because they have the same nickname, the facts and differences between the 1960s private mortgage product and the 1998 government-designed program are commonly confused. People who remember reverse mortgage articles from the 1970s assume the new HECM program is the same. That is untrue. So, what are we to do?
Let's take a moment to explore the top 7 myths and let's separate the facts from the fiction about reverse mortgages.
Let's take a moment to explore the top 7 myths and let's separate the facts from the fiction about reverse mortgages.
Myth #1
FICTION: With a reverse mortgage you are selling your house to the bank and the house has to be free and clear to qualify.
FACT: Homeowners never give up title or ownership of their homes and most homeowners use loan proceeds to pay off an existing loan.
FICTION: With a reverse mortgage you are selling your house to the bank and the house has to be free and clear to qualify.
FACT: Homeowners never give up title or ownership of their homes and most homeowners use loan proceeds to pay off an existing loan.
Myth #2
FICTION: I will lose my government assistance if I get a reverse mortgage.
FACT: A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. A HECM line of credit can be a good solution. For example, if you request $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine.
FICTION: I will lose my government assistance if I get a reverse mortgage.
FACT: A reverse mortgage does not affect regular Social Security or Medicare benefits. However, if you are on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. A HECM line of credit can be a good solution. For example, if you request $4,000 in a lump sum for home repairs and spend it all the same calendar month, everything is fine.
Myth #3
FICTION: All reverse mortgage funds that you receive need to be explained, justified and approved for use by the lender, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
FACT: There are no restrictions, approvals, explanations or reporting required. Funds may be used for any purpose, at will, without justification. Currently, all types of reverse loan proceeds are received tax-free and do not need to be claimed on your tax returns. After you receive your funds, you can consult with a trusted advisor and make any decisions you wish about how you spend, preserve or invest your loan proceeds.
FICTION: All reverse mortgage funds that you receive need to be explained, justified and approved for use by the lender, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
FACT: There are no restrictions, approvals, explanations or reporting required. Funds may be used for any purpose, at will, without justification. Currently, all types of reverse loan proceeds are received tax-free and do not need to be claimed on your tax returns. After you receive your funds, you can consult with a trusted advisor and make any decisions you wish about how you spend, preserve or invest your loan proceeds.
Myth #4
FICTION: Reverse mortgages are a loan of last resort. They are only for people in desperate financial conditions.
FACT: Many people use a HECM Line of Credit as a safety net to draw on in case of emergency. In addition, it is now possible to get a Portfolio reverse mortgage up to six million dollars. Many people use this money to invest and create retirement income, as well as use the HECM to pay for property taxes and home repairs. Reverse loans are now being used in sophisticated retirement planning and asset protection programs. They are a hedge against portfolio drops due to a Bear Stock Market or used to delay taking Social Security benefits till age 70. Even used for asset protection to help make your home impervious to slip-and-fall lawsuits. Call us to discuss the particulars of your situation.
FICTION: Reverse mortgages are a loan of last resort. They are only for people in desperate financial conditions.
FACT: Many people use a HECM Line of Credit as a safety net to draw on in case of emergency. In addition, it is now possible to get a Portfolio reverse mortgage up to six million dollars. Many people use this money to invest and create retirement income, as well as use the HECM to pay for property taxes and home repairs. Reverse loans are now being used in sophisticated retirement planning and asset protection programs. They are a hedge against portfolio drops due to a Bear Stock Market or used to delay taking Social Security benefits till age 70. Even used for asset protection to help make your home impervious to slip-and-fall lawsuits. Call us to discuss the particulars of your situation.
Myth #5
FICTION: Reverse mortgages are costly and have high fees.
FACT: Interest rates are comparable to conventional Federal Housing Administration (FHA) rates and fees vary by lender. Sometimes there are virtually no closing costs with one exception. There is a insurance fee that is unique to a HECM that guarantees that this is a non-recourse loan. Our company works with eleven different reverse companies with fifteen different programs to design the best programs to solve your problems.
FICTION: Reverse mortgages are costly and have high fees.
FACT: Interest rates are comparable to conventional Federal Housing Administration (FHA) rates and fees vary by lender. Sometimes there are virtually no closing costs with one exception. There is a insurance fee that is unique to a HECM that guarantees that this is a non-recourse loan. Our company works with eleven different reverse companies with fifteen different programs to design the best programs to solve your problems.
Myth #6
FICTION: If the home loan balance grows bigger than the home value, the borrower is on the hook for the difference.
FACT: All reverse mortgages are non-recourse loans, and a borrower, the estate, the children or the trust will never owe the lender more than the current value of the home. The way these loans are currently designed, it is usual and customary that there are substantial assets for inheritance from the family home after the home owners die, or if they decide to sell the home while still alive and downsize.
FICTION: If the home loan balance grows bigger than the home value, the borrower is on the hook for the difference.
FACT: All reverse mortgages are non-recourse loans, and a borrower, the estate, the children or the trust will never owe the lender more than the current value of the home. The way these loans are currently designed, it is usual and customary that there are substantial assets for inheritance from the family home after the home owners die, or if they decide to sell the home while still alive and downsize.
Myth #7
FICTION: There are few if any differences between a HECMLOC (Home Equity Conversion Mortgage Line Of Credit) and a HELOC (Home Equity Line of Credit).
FACT: They are entirely different except that they are both lines of credit that use your home as collateral for the loan. Most importantly, once in place a reverse line of credit is no longer tied to the value of your home. Therefore the lender cannot call, cancel or reduce the line of credit, even if the value of your home decrease.
FICTION: There are few if any differences between a HECMLOC (Home Equity Conversion Mortgage Line Of Credit) and a HELOC (Home Equity Line of Credit).
FACT: They are entirely different except that they are both lines of credit that use your home as collateral for the loan. Most importantly, once in place a reverse line of credit is no longer tied to the value of your home. Therefore the lender cannot call, cancel or reduce the line of credit, even if the value of your home decrease.
Let us separate fact from fiction and Reverse Your Thinking® about reverse mortgages!
Speak to the Expert:
Mathius Marc Gertz MBA, AFC®, CAPS
Mathius Marc Gertz is a Mortgage Broker with Reverse Your Thinking® Mortgage and is located in Los Angeles County. The Principal of parent company SayWhyNot, Inc.,Marc holds a Masters in Business Administration (MBA), is an Accredited Financial Counselor (AFC®) and also a Certified Aging in Place Specialist (CAPS). Through his mortgage practice, Marc represents a complete spectrum of reverse mortgage and limited equity share programs. He collaborates with trusted advisors to design and implement programs that satisfy the legal and financial planning needs of their clients. As an AFC®, he offers both lender-sponsored programs to his clients as well as fee-based counseling.
Marc maintains a holistic collaborative approach to the reverse financial planning process that includes educating advisors and keeping them current on financial strategies to help protect the quality of their clients lives. Marc believes that the key to a successful long term retirement plan is open communication and being proactive, along with a plan designed to address the unique needs and goals of each and every client.
The three watch-words of his practice are; collaborate, educate, problem-solve.
A specialist in reverse financial retirement plans and their history, Marc is frequently invited to present training and educational sessions for attorneys, financial planners, fiduciaries, accountants and bankers. He also does educational seminars for schools, colleges, and community & fraternal groups on wealth creation, money and emotions, aging in place and political and financial literacy. Marc has earned a reputation for explaining difficult subjects in a style that is easily understood.
Marc maintains a holistic collaborative approach to the reverse financial planning process that includes educating advisors and keeping them current on financial strategies to help protect the quality of their clients lives. Marc believes that the key to a successful long term retirement plan is open communication and being proactive, along with a plan designed to address the unique needs and goals of each and every client.
The three watch-words of his practice are; collaborate, educate, problem-solve.
A specialist in reverse financial retirement plans and their history, Marc is frequently invited to present training and educational sessions for attorneys, financial planners, fiduciaries, accountants and bankers. He also does educational seminars for schools, colleges, and community & fraternal groups on wealth creation, money and emotions, aging in place and political and financial literacy. Marc has earned a reputation for explaining difficult subjects in a style that is easily understood.
Collaborate. Educate. Problem-Solve.
Sign Up for Our Newsletter!
"Reverse Your Thinking®:
90 Seconds in Reverse with Mathius Marc Gertz"
90 Seconds in Reverse with Mathius Marc Gertz"
What Others Have To Say...
|
Marc came to my rescue. He structured the Jumbo-Reverse loan so I was able to set aside $1,000,000 towards monthly income.
He made sure my appraisal came in at full value. Now I will be able to stay here for the rest of my life. He is the best at what he does. Call him! – David H, Beverly Hills, CA Marc did a great job getting me qualified so I could use a reverse mortgage-for- purchase to buy my retirement home. He overcame many financial obstacles on my behalf and succeeded where others would have failed. I’ve actually come to think of him as a loyal friend.
– Gloria L, Tucson, AZ |
Marc did a financial analysis for me and showed me how I was going to run out of money in 6 months. He was honest and he structured a reverse mortgage for me that not only cleaned up my bills, but also fixed up my house and gave me time to sell my business. Today I am debt free, my stress is down and my health and quality of life is better thanks to him.
– Paul Z, Lake Arrowhead, CA Marc got me a reverse mortgage on my mobile home. My taxes are paid, my bills are paid off, and I have a car that is reliable and money in the bank. He did a great job and he is a nice guy.
– Johnny P. Camarillo, CA |
