Reverse Mortgages Provide Security In Uncertain Times
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Feeling a little financially insecure these days? You’re not alone, and there are options for homeowners to find security in uncertain times.
While real estate strategists have touted the resiliency of the local housing market, there are still concerns about a coronavirus-fueled recession, prompting homeowners to evaluate their options for saving money.
Leveraging with reverse mortgage proceeds is a smart consideration for seniors 62 or older in this down market, says Dallas
mortgage expert Jan McFarlane.
“Because of Texas’ highly protective homestead laws and constitutional standards, reverse mortgages are one of the most consumer-friendly mortgage loans in the country,” she explained.
A reverse mortgage allows a homeowner to access the unencumbered value of their property. It’s a mortgage loan that’s secured by their homestead and typically does not require monthly mortgage payments.
Is This For Me?
A reverse mortgage is ideal for retirees looking to supplement their income between retirement and access to Social Security benefits.
“First of all, most people don’t know that you have to qualify for this mortgage,” McFarlane said in a recent Q&A with Candy’s Dirt. “And the biggest myth is the lender takes your home when you die or no longer live in your home. Not true. Your home passes to your heirs.
“The reverse mortgage is a refinance of the equity in your house just like if you had a mortgage at a bank. You leave your home to your heirs and it is a non-recourse loan. Heirs are not responsible if your house is worth less than you owe, nor is the borrower.”
Indeed, the borrower does not have personal liability for a non-recourse loan, even if the resale value of the collateral dips below the loan balance over the course of the loan.
It’s Not About Income Or Social Status
Because there’s confusion around what a reverse mortgage actually is, there also may be a bit of a stigma. But McFarlane explained a reverse mortgage is a sophisticated loan that you must qualify for.
“The people I originate reverse mortgages with are some of the most sophisticated in town,” McFarlane said. “Many borrowers flow from the Park Cities, Preston Hollow, North Dallas, all over the Metroplex. A reverse mortgage can help send a grandchild to college or be used for medical care.”
If a borrower owes little or owns their home outright — their equity is in the walls of their house, McFarlane added.
“A reverse mortgage is like getting a hammer and knocking out the cash holed up in that wall,” she said. “A borrower may have significant investments they do not want to liquidate, but they need funds.”
A reverse mortgage is absolutely not filing bankruptcy or robbing Peter to pay Paul. And with an expert like McFarlane showing you the ropes, you’ll be confident you made the right decision before the process is complete.
For more information about reverse mortgages, contact Jan McFarlane at 214-548-9902 or [email protected].
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I am aware of situations where the older adult homeowner takes out a reverse mortgage and the title is no longer in their name. When the older adult falls on hard times and needs help from the City of Dallas senior emergency services to pay for a house repair, say the AC or water heater or holes in the floor, the senior is not qualified for This program to help because the title is in the reverse mortgage company’s name. Am curious about this.
No, this is a common myth… a good question however and glad to clear it up now.
The Senior Borrower on the Reverse Mortgage is the only person on title. The lender is never on title and when the borrower moves out, the funds on the sale go to the borrower. Should the borrower pass away while residing in the home, the home passes to the borrower’s heirs.. I appreciate your asking this as it is the most common myth about this product. As an aside, the Reverse Mortgage is a non-recourse loan, and there is no recourse to the borrower or their heirs should the house be worth less than the loan. Hope this helps and would be glad to answer other questions.
Hello,
I have a few questions, actually four questions to start. Let’s say that a borrower applies for a reverse mortgage and it is approved. And then they die and leave their house to their daughter.
The loan must be repaid, correct?
Does the home not constitute collateral on the reverse mortgage loan?
And if the heirs are not liable for the remaining loan balance, then how does the loan get repaid?
According to the article I’m led to believe that an heir could keep the home. However, wouldn’t the heir be liable to repay the reverse mortgage loan out of their pocket, if they were to choose to keep the home?
Thanks.
Very good questions –
1. Yes the loan must be repaid; however, there are several questions for the daughter to answer so she knows what her options are.
An heir has 12 months to repay the Reverse Mortgage loan. The first six months (180 days), the servicing company issues a six month grace period and all the heir pays is taxes and insurance. Then if the loan is not paid in that time, the heir can request that HUD step in and give the heir another 6 months to repay the loan continuing to pay taxes and insurance on the home of course.
The question for the heir is to answer whether they want to keep the house and pay off the existing loan or sell the home. In either case, 12 months grace period is given to the heir.
2. Yes.. the home is collateral for the loan. An appraisal was done to qualify the borrower when the Reverse Mortgage was originated. There is a lien on the home.
3. I think I explained this question – heirs have many options but they are responsible for paying off the loan just as if their benefactor who took out the loan originally had a mortgage from any lending institution.
4. The answer is yes…. the heir, once again, has 12 months to pay the loan off whether they sell the property or keep it. If they sell the property, the title company gets a payoff and the mortgage is paid to the lender at closing and the heir walks away with the equity that is left. But if the heir wants to keep the home, then they would in most cases go to a lending institution and refinance the remaining balance.
What if the home were to appraise for less than what the loan amount is?
1. The heir (in this case daughter) walks away. The fastest and easiest way would be for the heir to sign a deed in lieu of foreclosure and this makes it easier, saves attorney fees and downtime for the lender and the heir walks away with no recourse.
2. The heir (daughter again) wants to keep the home and it is going to appraise for less than what is owed, then the heir is given the choice of obtaining a loan for 95% of market value. Example: Loan is $450,000, home will appraise for $300,000.
(market value) heir may obtain a loan and keep the home in the amount of $285,000.
I hope I have answered your questions to your satisfaction. And would be happy to talk with you further personally. Phone: 214-548-9902 There are so many myths and misconceptions about the Reverse Mortgage and the bad stories and press are usually from the general public, who do not understand the full story of what happened and as I always say “Bad news travels around the world 3 times, while good news is still trying to it’s boots on.”
Thank You for the detailed response. Really informative.
Thank you so much for the kind words. Hoping this answered all your questions and you can use this information to your advantage. Should you
have already inherited a home with a Reverse Mortgage and you run into snags, please reach out to me by phone. I will be happy to walk you through this process. Stay healthy and best regards! Jan
Reverse mortgages are very expensive to close. Lender fees and total amount to close are significantly higher than a traditional mortgage. Lenders often roll sine costs into the principal amount to reduce the amount to close but make no mistake, you are paying to close one of the most expensive mortgage loans available. There are some benefits to certain senior situations, but it’s an expensive alternative for a loan that is very low risk for the bank. Be very cautious! That is no myth!