Reverse mortgages may be the hot new retirement planning tool
It isn’t just lenders, Realtors and retirees who are bullish on reverse mortgages. Jeff Birdsell, vice president of profession services at reverse mortgage technology provider ReverseVision, not only sings the praises of this once maligned product but also forecasts strong growth for the sector.
He said that in the past reverse mortgages were seen primarily as a needs-based product, something seniors might consider as an alternative to having to move. Today, he said, largely as a result of regulations promulgated by HUD over the past few years, these mortgages are now considered part of a well-rounded retirement portfolio.
One of the drivers of this new way of looking at reverse mortgages is the fact borrowers who opt for an adjustable rate reverse can use their equity as a line of credit that will grow over time at the same rate as the interest rate they pay on the line of credit. So, for instance, a borrower with $200,000 of equity and $200,000 of mortgage debt and a 4% interest rate, would see their line of credit grow by 4% a year at the same time that their note grows by 4%, assuming they are neither paying the note down nor drawing on the equity.
People who want to can make payments every month just as they did with a traditional forward mortgage, and the result of those payments would be to increase the available line of credit and reduce the note. At any time that the borrowers choose, they could make no payments or even receive monthly payments, all depending on their needs.
A reverse still works as a needs-based product, enabling people to stay in their homes without making payments as long as they stay current on insurance and taxes. One of the HUD changes that has led to greater mainstream acceptance of the product, he said, is the requirement that all borrowers go through a “financial assessment” before being approved for the loan. The assessment is designed to ensure that borrowers will be able to continue to make insurance and tax payments and that if the borrower has financial challenges, the product will help address those challenges.
“I think the financial assessment requirement is absolutely fabulous for the whole industry and for the product because it brings some thought and accountability to what the seniors are getting into and makes sure they know that they still need to pay taxes. It brings a lot of comfort to institutions and banks that are used to the forward world because they have learned to get a good sense of what a borrower is like by doing a financial assessment. I think it helps everyone. It helps borrowers understand whether this is a benefit for them or not,” Birdsell said.
He said that in the past reverse mortgages were seen primarily as a needs-based product, something seniors might consider as an alternative to having to move. Today, he said, largely as a result of regulations promulgated by HUD over the past few years, these mortgages are now considered part of a well-rounded retirement portfolio.
One of the drivers of this new way of looking at reverse mortgages is the fact borrowers who opt for an adjustable rate reverse can use their equity as a line of credit that will grow over time at the same rate as the interest rate they pay on the line of credit. So, for instance, a borrower with $200,000 of equity and $200,000 of mortgage debt and a 4% interest rate, would see their line of credit grow by 4% a year at the same time that their note grows by 4%, assuming they are neither paying the note down nor drawing on the equity.
People who want to can make payments every month just as they did with a traditional forward mortgage, and the result of those payments would be to increase the available line of credit and reduce the note. At any time that the borrowers choose, they could make no payments or even receive monthly payments, all depending on their needs.
A reverse still works as a needs-based product, enabling people to stay in their homes without making payments as long as they stay current on insurance and taxes. One of the HUD changes that has led to greater mainstream acceptance of the product, he said, is the requirement that all borrowers go through a “financial assessment” before being approved for the loan. The assessment is designed to ensure that borrowers will be able to continue to make insurance and tax payments and that if the borrower has financial challenges, the product will help address those challenges.
“I think the financial assessment requirement is absolutely fabulous for the whole industry and for the product because it brings some thought and accountability to what the seniors are getting into and makes sure they know that they still need to pay taxes. It brings a lot of comfort to institutions and banks that are used to the forward world because they have learned to get a good sense of what a borrower is like by doing a financial assessment. I think it helps everyone. It helps borrowers understand whether this is a benefit for them or not,” Birdsell said.
