Often times I am asked if I would recommend a reverse mortgage for one of my own family members. I think this is a great question and the answer is quite simple. I would certainly recommend a reverse mortgage for a family member if the situation was fitting. Sometimes a reverse mortgage works perfectly for a senior citizen and their family and sometimes a reverse mortgage just does not make sense. This is where integrity comes into play. It takes a tremendous amount of integrity to be able to tell a potential client that a particular loan is not right for their situation. There are certainly lenders out there that will close a loan at any cost; sometimes at the cost of the senior citizen and their family. The family values that have been instilled in me tell me to always put the client and their interests before everything else.
My name is Kevin Blaney and I have been a reverse mortgage professional for thirteen years. I truly believe that there is no gray area when it comes to reverse mortgages. The reverse mortgage either works perfectly for a senior citizen and their home or it does not work at all. There is no middle ground. The first question I always ask is whether or not there are other family members (besides the senior citizen) that count on the home as their primary residence. If someone else counts on using the home as their place of living for the future than we immediately take a closer look at this situation. When a senior citizen has a reverse mortgage and they pass on, their heirs will be required to address the mortgage balance. I use the term “address” the mortgage balance because there are several options. The first option is for the heirs to sell the home. Let’s assume the senior citizen passes on while there is a reverse mortgage balance of $180,000 on a home that is valued at $450,000. If the heirs choose to sell the home they will do so while paying back the reverse mortgage balance and receiving the net equity of approximately $270,000. This is the most common example when a senior citizen passes on with a reverse mortgage balance. But what if the heirs do not want to sell the house? What if the heirs want to keep the home in their family as either a place to live or as a second home or investment property? There are ways that the heirs can accomplish this. The heirs can pay back the reverse mortgage balance with other funds. Often times an inheritance includes life insurance payouts, investment accounts, automobiles, jewelry and other assets that have been passed on by the senior. In some cases, these other assets can be used to pay back the balance of the reverse mortgage. Another common way of paying back the reverse mortgage balance is to refinance the balance onto a more age appropriate mortgage. In this same example, the heir would refinance the $180,000 reverse mortgage balance onto a traditional mortgage like a thirty year fixed rate loan. Remember, the only reason the heirs would be looking into options of paying back the reverse mortgage balance is if they did not want to sell the house upon the reverse mortgage borrowers passing.
Let’s assume a situation where the reverse mortgage balance becomes larger than the value of the home. Will the senior citizen be forced to move out of their house at this point? Will the heirs have to pay back the balance that exceeds the value of the home? Thanks to the Federal Housing Administration insurance that is in place on a reverse mortgage neither of these things happen. If the balance of the reverse mortgage ever exceeds the home value the senior is not asked to leave the home. They are allowed to remain living in the home for as long as the keep it as their primary residence. If for some reason they decided to sell the home they would be able to sell the home for fair market value and the reverse mortgage balance would be wiped clean. Even if the balance was higher than the current fair market value. There is even a provision in the loan which allows for a realtor fee to be paid to help sell the home. This situation applies to an heir that has inherited a home that is “underwater” due to a reverse mortgage. You may have heard the term “underwater” in the news over the past few years. We call a situation “underwater” when the balance of a mortgage is larger than the value of the home it is secured by. A reverse mortgage is one of the only loans I know of that has a provision to protect you from ever becoming “underwater”? If there is ever a time where the balance of the reverse mortgage becomes larger than the value of the home, the sale of the home will always wipe the mortgage balance clean. That means if the heirs inherit a home that has a $300,000 reverse mortgage balance and the value of the home is $250,000 they can sell the house for the $250,000 and there is no additional debt or balance to be paid. Since every family situation is unique please feel free to email me specific questions that pertain to your family at [email protected]
People are often times shocked when I tell them there are situations where a senior citizen can leave MORE of an inheritance after enrolling in a reverse mortgage program than if they had not done so. Here is the example I will make to prove this point. Let’s assume a senior citizen has a $200,000 mortgage balance with twenty five years remaining and a monthly payment of $1,075. Let’s also assume that the value of their home is $350,000. Did you know it will take the senior $322,500 to pay off this balance by making monthly payments? Let’s assume that instead of making monthly payments this senior decides to do a reverse mortgage. This senior has now saved an $322,500 that they can keep in savings and pass on to their heirs. They can also use some of this money to do things in life that they would like to do before they pass on. Let’s imagine something catastrophic happened to home values and the senior’s home became worth only $200,000. In the case that this senior had not enrolled in a reverse mortgage and continued to pay their monthly payment of $1,075 the net inheritance to the heirs would be the value of the home which is $200,000. In this same case where the senior enrolled in a reverse mortgage balance the senor would pass on the $322,500 in cash flow savings since they did not have mortgage payments for all of those years. The heirs would take advantage of the federal housing administration insurance that allows them to sell the house for fair market value and wipe away the balance of the reverse mortgage. In this case the heirs inherited an additional $122,500 since the senior citizen enrolled in a reverse mortgage. Not every situation is similar so it is important to discuss your exact situation before making any decisions. I am always available to answer more specific questions at [email protected]
Kevin Blaney
Branch Manager | NMLS 43951
Phone: 516-714-4169 | Fax: 888-770-7885 | Mobile: 516-250-1012
