I recently chatted with a couple that owes about $800,000 against a $2.5 million home. They are in their early to mid 70’s and they want to keep their home, lower their housing payment to free up cash for other expenses (such as long-term care insurance), and fully retire. Most of their net worth is tied up in their home too.
In other words, they are perfect reverse mortgage candidates!
When I suggested a reverse mortgage though, they both immediately replied with this: (1) we don’t want a reverse mortgage under any circumstances; (2) none of our friends have a reverse mortgage; and (3) we are not that desperate.
I felt like I was in a reverse mortgage sales training class, so common and perfect were those objections.
The above couple was not desperate in any way, but their lives would be made immeasurably better with a reverse mortgage that would eliminate their mortgage payment.
In addition, far more of their friends have reverse mortgages than they probably realize, as reverse mortgages are now very common in high-end communities where seniors are sitting on a ton of appreciation and want to remain in their homes.
HOW REVERSE MORTGAGES WORK
Reverse mortgages took on a stigma in the late 1980s and early 1990s when unscrupulous lenders were in fact taking advantage of seniors with reverse mortgages that had egregious terms and that sometimes caused seniors to lose their homes.
That is not the case today, as the reverse mortgage arena is very heavily regulated.
If the above couple borrows $800,000 for their reverse mortgage, they will simply accrue interest against that balance until they sell, move or pass away. It is that simple. They will never “lose their home” and there is no title transfer.
Their equity cushion will likely increase too, even with the accruing interest, as the appreciation against their $2.5 million home will very likely exceed the interest accruing against their $800,000 reverse mortgage – over the long run.
Reverse mortgage rates are in the mid 3% to 4% ranges, depending on the type and size of the reverse mortgage.
Here is an Investopedia article that explains reverse mortgages in great detail.
REVERSE MORTGAGES FOR PURCHASES
Here is a short video that explains how, why, and when reverse mortgages are excellent options for purchases too.
The short video describes a couple with a $600,000 loan against a $1 million home.
The couple, with minimal liquid assets, downsizes and then uses the equity from the sale of their home to buy a smaller home with a reverse mortgage, resulting in no mortgage payment.
NO REASON FOR STIGMA
My main point is that there is no reason for any type of stigma relating to reverse mortgages.
They are an excellent tool that allows senior couples to remain in their homes, to eliminate payments, to pull cash out for debt consolidations and home improvements (equity permitting), and to simply live much better lives.
Reverse mortgages also pose no threat to title or ownership, and they pose much less of a threat to “equity cushions” and estate values than most seniors realize.
FINAL POINT – NOT SELF-SERVING
My final point is this. Yes, we offer reverse mortgages at JVM, but that is not why I am writing this blog. I am writing this blog b/c reverse mortgages can improve lives massively in many cases, so I desperately want to remove the stigma.
The couple I discuss above was even more hesitant b/c they seemed concerned that I was being self-serving or trying to upsell them into a reverse mortgage to make more money.
In light of that and b/c I knew that a reverse mortgage was by far in their best interest, I referred them to a friend of mine who specializes in reverse mortgages and who is not affiliated with JVM in any way.
A reverse mortgage will improve their lives so much that I wanted to eliminate every possible obstacle and objection, even if it costs JVM a nice commission.
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