Reverse Mortgage Line of Credit or Conventional Line of Credit?

Seniors gardening

From Shawna McDonald at Sierra Foothills Reverse Mortgage, located in downtown Grass Valley:  “Hello and Happy Spring to Seniors in Grass Valley, Penn Valley, Nevada City and surrounding areas. “

Spring is finally here and I wanted to share on my blog an article I recently wrote for our local newspaper The Union:

Reverse Mortgage Line of Credit or Conventional Line of Credit?

Two sets of clients consulted me with identical decisions: having retired, they sold large homes, paid all cash for smaller homes and modest remainder funds went to savings. Year one on retirement income went ok, however modest remainder savings for emergencies and little extras proved insufficient, sleepless nights ensued: “What if the roof and car went out?” Their question: Should we do a reverse mortgage credit line loan or a conventional credit line loan, aka a “HELOC”?

Having met with me, a reverse mortgage loan specialist and then independently with a conventional banker, both couples came to the same conclusions; a reverse mortgage credit line was the best option for them. Why? Unlike a RM credit line loan, a “HELOC”, requires monthly payments, is for a fixed period of time, and may require a future reset to a higher monthly payment. Both couples planned to use the proceeds of the HELOC to pay the monthly HELOC payment, therefore, realizing that when the HELOC credit line ran out, they would be forced to sell their homes if they weren’t qualified to refinance and take out more money to keep up with the payments. This risk potential was causing considerable distress, they wanted to age in place in their homes. Additionally, if one or the other passed, due to a then diminished household income and little life insurance in place; the remaining spouse would be required to go through the upheaval of selling the home because of an inability to make the monthly HELOC payment.

A HELOC typically has features which alarm me if used as a financial tool for seniors: A HELOC lender may reduce available HELOC funds or freeze the funds under certain conditions. This is NOT allowed with a RM credit line loan, RM loans are government supervised, insured by FHA and cannot be reduced, altered, or frozen; however, a RM loan does have a higher cost than a HELOC for these safety/insurance guarantees. As with any loan type, keeping current on property taxes and insurance is required.

The RM credit line loan will be titled like any loan, the borrowers remain owners of the home, the lender does NOT own the home, (a common RM myth). Regardless of the remaining amount in the RM credit line, both borrowers or the remainder borrower, if one predeceases the other, may stay in the home for their lifetime(s), sell and keep the remaining equity, or bequeath remaining equity to heirs, as they choose.

Shawna McDonald, Loan Officer, for 10 years has dedicated herself to specializing in reverse mortgage loans, she has successfully completed hundreds of them. Call Shawna to discuss your retirement goals: by private appointment or call for her next seminar date. Sierra Foothills Reverse Mortgage 412 E. Main Street Grass Valley (530) 497-3010. NMLS #271335 | CalBRE #00585530 Borba Investments Inc. Company NMLS #76801 |Company BRE # 01446165 These materials are not from, and were not approved by HUD or FHA

 

 

Advertisements

Chicago Tribune: Reverse Mortgages Becoming Better Options for Seniors

The “windy” city’s largest newspaper recently printed this article. I was just thinking how lovely it would be if our next national reverse mortgage lenders convention were in Chicago, they have some pretty amazing restaurants, not that they let us out much from seminars when we attend one of these conventions, maybe I could stay a little longer !  I like the citizens’ feistiness too, here is a picture of seniors protesting cuts to Medicare. We boomers and our protests….carry on!

Senior citizens in Chicago Illinois protesting cuts to MediCare

If you are not interested in this article but would like to learn more about my 7 years of reverse mortgage experience and local Grass Valley Reverse Mortgage office click here:  http://www.SierraFoothillsReverse.com or even easier, just call me: 530-497-3010.

Ok, I’m back on task…Reprint form Chicago Tribune recent article:

Reverse Mortgages are Becoming a Better Option for Seniors

Elliot Raphaelson, Tribune Content AgencyThe Savings Game

In past columns, I have generally been skeptical of reverse mortgages. However, the Reverse Mortgage Stabilization Act of 2013 introduced more customer safeguards. And some lenders are offering better terms and lower upfront costs.

If you do your homework, you might find a reverse mortgage that provides you with benefits that other financing alternatives do not provide. A more reliable line of credit is one of the more important potential advantages.

I highly recommend “What’s the Deal with Reverse Mortgages?” (People Tested Media), a new book by Shelley Giordano, principal of Longevity View Associates, a reverse mortgage consulting firm, and chair of the nonprofit Funding Longevity Task Force. It will help you understand options such as fixed vs. variable loans, the nuances of using credit lines and all of the mortgage fees.

Giordano discusses the merits of home equity lines of credit (HELOCs) vs. those of home equity conversion mortgages (HECMs, FHA-insured open-ended reverse mortgages). HELOCs, she argues, have significant disadvantages. Borrowers have to repay principal and interest, whereas reverse mortgage borrowers are under no such obligation. Financial institutions can cancel HELOCs if they believe that borrowers have insufficient income or assets. Borrowers with a HECM line of credit don’t have this vulnerability.

The Reverse Mortgage Stabilization Act of 2013 provides some safeguards for both consumers and lenders. The act introduced financial assessments as the basis for HECM loan approvals. These assessments were developed to ensure that individuals would have the financial wherewithal to maintain their homes, pay real estate taxes and homeowner insurance. Prior to this reform, reverse mortgages had a high rate of foreclosure. As long as individuals can meet these requirements, and maintain residence in the home, they will not face foreclosure.

The Act of 2013 also addressed a prior disadvantage. Previously, if the only individual named in the mortgage agreement died, the surviving spouse would have to repay the outstanding loan in order to remain in the home. Under the new provisions of the act, a non-borrowing status (NBS) was created that allows the widow(er) to defer due and payable status provided that within 90 days after the death of the last surviving borrower, he or she establishes legal ownership or other ongoing legal right to remain in the property.

For seniors looking to alleviate tight budgets, I believe that options other than reverse mortgages should be considered, such as downsizing or selling and renting an apartment. Consider your health. Reverse mortgages lose their primary advantage if you cannot stay in the residence over the long term. If it is important for you to leave home equity to your heirs, then reconsider using a reverse mortgage, because there is no guarantee that there will be any equity left after your death.

(c) 2015 ELLIOT RAPHAELSON. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.

Copyright © 2015, Chicago Tribune