By Kelly Robertson—When I was d loan signings regularly, I took a particular interest in Reverse Mortgages. I’m no expert but I’d love to share a few facts that I’ve learned along the way. As a loan signing agent and notary instructor, I realize that what we’re notarizing means nothing to us: don’t analyze; just notarize. However, when it comes to a Reverse Mortgage—and from a personal standpoint—I think it’s important that you know what a difference a Reverse Mortgage can make in your signer’s quality of life. Although a Reverse Mortgage is definitely not for everyone, for the right person, it’s perfect!
Here are some basic Reverse Mortgage facts:
- All borrower(s) must be 62 or older and the loan is based on the youngest person on title.
- All persons on title remain on title and can live in their home as long as they want. Many are under the mistaken impression that “the bank” owns their home after an RM.
- The loan is based on property location, equity and age of borrower. To make it easy, remember that the older the borrower is, the more likely they will qualify for the maximum loan amount.
- The borrower will never have to pay their mortgage payment again unless they move permanently.
- The residence with the RM must be the borrower’s primary residence; however, they can be gone for up to 12 months, snowbirds for example.
- The RM and any proceeds from equity don’t affect the borrower’s Social Security or Medicare because it’s not considered income. Here’s where I include my disclaimer that all RM borrowers should consult with their attorney or a licensed tax preparer!
- Reverse Mortgages are expensive and eventually accrue negative amortization.
- Interest rates for HECMs (Home Equity Conversion Mortgages) are generally not based on the LIBOR; they are based on the Treasury Note.
- The borrower’s credit is not important. Liens and bankruptcies, however, may impact the amount of the loan proceeds.
- There are no income requirements. Remember, the borrowers don’t pay back the loan.
- Extra proceeds from equity can be used any way the borrower’s want with no restrictions.
- Although the RM makes the mortgage flow in reverse (get it?), homeowners must still pay their taxes and home insurance and ‘maintain’ the property.
- Heirs of the property have three choices:
- Pay off the RM and move in,
- Pay off the RM and rent the place out,
- Or pay off the RM and keep any extra proceeds.
- The FHA requires all borrowers of RMs to participate in a mandatory counseling session (in person or by telephone for most states).
- The FHA guarantees that the home will never be worth less than what was originally appraised (the insurer would have to cover the difference if there was one at time of sale).
Using my grandmother for example, a Reverse Mortgage basically saved her. When the love of her life and husband for over 50 years died, so did his military pension and Social Security check. As you may know, she could only receive the difference between hers and his – something like $200 bucks a month. That’s it. How could she continue to make her mortgage payments and live in her house with only her Social Security check of just over a thousand a month? The math proved she couldn’t. A Reverse Mortgage not only made it so she didn’t have to pay her house payment any more, but, since she had a lot of equity, she was able to take some money out to have a little fun and pay off her car, too. The rest is being paid to her in a monthly payment for the rest of her life. That was 9 years ago and she’s still having fun!
One other thing: You’ve got to get to know your client if you sign Reverse Mortgages. They are Seniors, yes, but they are also seasoned, smart, educated and worldly. They expect and deserve your respect, time and patience. A Reverse Mortgage isn’t just about a house; we’re talking about their HOME! Be sure to take your time with your RM clients and put them at ease by letting them know that you are not in a hurry and are honored to be a part of such an important event in their life. I’m sure they’d love to invite you to stay for tea and look at pictures of their grandkids so keep it simple and just plan on it!