Reverse Mortgage | When The Money Runs Out
Reverse Mortgage | When The Money Runs Out
The 2 Most popular questions regarding reverse mortgages, “Chris, can I lose my home?” and “What if the money runs out?”
• Question one and the most common of all myths:
Can I lose my home?
There are a few necessary requirements that are common sense to “not” lose your home with any mortgage, not just a reverse mortgage. On any home loan, you must pay 2 items otherwise they will be imposed on you. You have no choice but to make the property tax and homeowners insurance payments. On a standard loan, if you do not pay either one, the mortgage company will pay them and add those payments to your mortgage. Leaving you no choice but to pay them. If a home is mortgage free and you didn’t pay your property taxes – what would happen? The municipality that you pay the property taxes to would foreclose on the property.
On a reverse mortgage, there are no payments made by the borrower that a lender can add the taxes and insurance too. Not paying property taxes or homeowners insurance certainly is not an option. It can result in foreclosure and put the lender at risk. Obviously, paying taxes is a requirement. We can also agree that not paying homeowners insurance would not be a wise option. That would put both the borrower and the lender at serious financial risk. For this reason, the borrower must pay for adequate homeowners insurance. The only other requirement is for the upkeep of the home. Basic maintenance must be performed to keep the home in adequate shape.
These items are all explained in detail to the borrower on every reverse mortgage. It is also a requirement that the borrower goes through an educational class taught by a HUD counselor to ensure that these items are understood. Since the borrowers are seniors, and traveling can sometimes be difficult, many of these counselors will teach the class over the phone. Having another person such as a son or daughter or other trusted advisor take part in the class with the senior is highly encouraged. So the answer to the question: can the borrower lose their home is yes. However, it is only by being irresponsible can this happen. If one or more of these items become an issue, the bank will notify the borrower. Often a person is chosen to assist the borrower with plenty of ample time to resolve the issue and avoid foreclosure.
• Question two, when the money runs out people ask me all the time
“Hey Chris, what if you ever owe more than the house is worth?”
Well, you’re paying for insurance for that. So, if that should happen, you’re not affected. You continue to live in that home and God forbid anything happens to you, again your children have the option to walk away. Because it’s upside-down or refinance or sell, the choice will be theirs at that time. There are many myths regarding reverse mortgages and the bank owning and wanting the home is the biggest myth in the reverse mortgage industry. The bank does not want the house and does not want you to lose your home. It is costly in legal fees for the bank to foreclose and it almost always will ensure a loss for them if they must.
People often say regarding reverse mortgages: I heard about a time…, this guy Iknow…., my Uncle Charley had one and…, the issues with these stories are they are always incomplete of facts. The borrower or some saying “they didn’t tell me….” Yet they went through a HUD-approved training class, signed the documents stating that they understand, had a person that they trust to go through the same and then they did not stick to their responsibility to honor their end of the loan… and then they blame the bank while leaving out important details. They often worry about their heirs. They would still inherit that home. The house might have a little bit less equity but if that’s what is needed for you to have a better retirement, well, so be it. So, you do not lose your home, and your children do not lose the house. They get to sell the home, refinance the home, or pay it off god forbid anything should happen to you.
What if the money runs out? Often, seniors are living on next to nothing, struggling and can not retire because of the mortgage and are only a minor illness away from losing the home. What do you want to happen? I want you to have a great retirement; this may be the right option for you. For so many people we can end the payments, and you do not lose your home. For many, we can also have monthly payment sent to the senior. Think of making a $1,500 a month payment, but instead having the mortgage pay you$1,500 a month with Zero mortgage (But you DO have to pay the taxes and insurance) This could be a $2,500 monthly reversal of income and expenses a month! The possible scenarios are as different as fingerprints, so you would need a personalized analysis to see how it could best help you.