Reverse Mortgages - What influences homeowners' decisions? Part Two

March 20, 2008 - PRLog -- Reverse Mortgages are increasingly become a popular tool with senior homeowners to provide a more comfortable retirement.  But for those who decided against a Reverse Mortgage, what did they cite as their reasons?

In part two of our article on the influences affecting seniors in their decision to get a Reverse Mortgage, we are looking at what reasons influence senior homeowners against a Reverse Mortgage.  To read part one of this two part series please go to the http://www.ReverseMortgageCity.com Media Center.  A recent AARP study provides many statistics that are helpful to both the public and consumers in determining why some senior homeowners decide not to do a Reverse Mortgage.  As a mortgage professional, I also wanted to take some time to discuss the perceived drawbacks cited by some seniors in the survey, and how to avoid these drawbacks.

A major reason that senior homeowners decide against a Reverse Mortgage are due to widely held misconceptions or lack of understanding of Reverse Mortgages.  According to the AARP study, only 15% of seniors said they were very knowledgeable about Reverse Mortgages, and 34% said they were somewhat knowledgeable.  The study did not, however, ask specific questions to test their understanding.  From personal experience, I know that most people still think that a Reverse Mortgage involves either giving up all of your equity to the bank, or at the very least participating in an equity sharing program.  It is important to know that a Reverse Mortgage, especially now with such low interest rates, does not involve giving up all of your equity to the bank.  Equity Sharing programs are beginning to be promoted by some companies, however, these are not Reverse Mortgages, and should be considered very carefully with an attorney and tax consultant.  True FHA insured Reverse Mortgages, and certain proprietary Reverse Mortgages (jumbo Reverse Mortgages, that are not FHA insured) work just like normal loans, except there are not any mortgage payments that need to be made.  The homeowner stays on title, remains the owner, can will the home to their heirs,  and when you decide to move or no longer reside in the home all that is due is the loan balance, the fees added to the loan (which are capped by lending laws), and the interest that accrues.  People cannot qualify for a reverse mortgage unless they have a significant amount of equity in their home, so it  takes a long time to actually use up all of your equity.  In many cases, the amortization works out so that there is equity left in the home even  20 to 30 years after the loan is taken out.  All of the equity that is left in the house when the homeowner either moves out of the house or passes away can still be willed to heirs.  The heirs can then either refinance the home to pay off the loan, or sell the home to pay off the loan, just like with any mortgage that would be on the property.

When considering a reverse mortgage, you should ask your loan officer for an amortization schedule that will show you how the loan balance adds up over time, and how this affects the remaining equity in the home.  This is a great tool to use when considering the effects of a Reverse Mortgage on you and your family.

Along these lines, it is also important to remember that by law, all Reverse Mortgages are non-recourse loans.  This means that in the event that the loan balance actually grows to more than the home is worth when it comes time to sell the home, the homeowner will not be responsible for any negative equity.  They can sell the home for market value, and just walk away without worrying about the lender ever coming after them for the remaining balance.

Another major reason that senior homeowners sometimes decide against taking a Reverse Mortgage are the costs associated with doing the loan.  This was cited as the main reason for not doing a Reverse Mortgage by 10% of the seniors surveyed who had decided not to do a Reverse Mortgage.  For a good reference of the various costs associated with doing a Reverse Mortgage, look at Reverse Mortgage City's article, "Reverse Mortgages - How Much Do They Cost?"  As mentioned, many of these costs are fixed and cannot be reduced or waived but many others are up to you and your broker or lender.  If you feel that doing a Reverse Mortgage would be beneficial to you, but the overall costs are just too high for your comfort, discuss the origination fee with your loan officer.  In most cases, this can be negotiated.  Keep in mind, your loan officer's broker or lender still has costs to pay associated with doing business and they still have to make some money, but they are always willing to make the deal make sense for you.   Rates are also very low right now and this significantly reduces the long term financing cost of a Reverse Mortgage as well.

The other major reason for not doing a Reverse Mortgage cited by some senior homeowners was just feeling that the loan was too complicated.  There are many benefits to doing a Reverse Mortgage, so it is important to work with a loan officer who wants to take the time to answer all of your questions completely and thoroughly.  In addition to your loan officer, all homeowners are required to go through independent, HUD certified counseling before they are allowed to do a Reverse Mortgage.  So, you will be able to ask questions to a completely independent third party.  There are many resources available on the AARP website, the HUD website, and the NRMLA website about Reverse Mortgages as well.  You can also ask questions online at http://www.reversemortgagecity.com with our live chat feature.

Another common concern and something we have talked about before is that some people decide not to do a Reverse Mortgage because they want to leave their home free and clear to their heirs. Of course this is an understandable concern. I would, however, recommend that you sit down with your family and discuss all of the options available and ask what their opinions are. You may be suprised by what they have to say.

More and more seniors are discovering the benefits of FHA insured Reverse Mortgages, but of course they are not for everybody.  Each situation is unique and you should discuss this very important decision with your family and trusted advisors. It is important to be well informed and to work with a licensed loan officer who is trained in Reverse Mortgages, someone who takes the time fully explain your options and answer all of your questions.

Website: www.reversemortgagecity.com