Reverse mortgages are widely advertised on TV, radio and online. But, are they a good idea for you? Who can you believe? And, how do you get good information?
A new study from Ohio State University sheds light on these topics. Researchers recently surveyed 30,000 seniors who received reverse mortgage counseling between 2006 and 2011.
Reverse mortgage counseling is a mandatory (it is actually required by federal law) and extraordinarily useful part of securing a reverse mortgage. The counseling is designed to:
- Educate you about how reverse mortgages work and to help you decide whether or not the product is a good fit for you.
- Help you explore reverse mortgage alternatives.
- Provide guidance and resources to help you make the best decision.
- Support you throughout the reverse mortgage application process.
Reverse mortgage counselors are trained by the U.S. Department of Housing and Urban Development (HUD). They are not affiliated with any lender and the counseling sessions are designed to help you. No counselor will ever tell you what you should or should not do.
In fact, if you are at all on the fence about whether a reverse mortgage is right for you or not, this unbiased counseling session can be an excellent way to get clarity and make a good decision.
Learn more in “Your Guide to Reverse Mortgage Counseling.”
About 2/3 of the potential reverse mortgage borrowers who received counseling proceeded to get the loan while 1/3 of counseling participants decided against getting a reverse mortgage. There should be no pressure to proceed with a loan.
Of the few who decided not to get a reverse mortgage, there were a large variety of reasons:
- 43% were not eligible
- 35% wanted to own their home completely free of any mortgage. (When you get a reverse mortgage, you do own the home, but you also have a mortgage on it.)
- 35% felt that the amount they were eligible to borrow was too small. (Your loan amount is determined by the value of your home, how much you owe on any other mortgages against the home and your age. Find out how much you can borrow.)
- 35% found another way to meet their financial needs.
- 31% believe that the costs of the reverse mortgage were too high. (Learn more about costs.)
- 30% wanted to retain all of their home equity to leave to heirs.
- The rest either: found the process too complicated, did not trust the loan officer, felt pressure from family members who did not want them to get the loan, were advised against the loan or other.
Between 77-83% of all reverse mortgage borrowers were satisfied or very satisfied with their decision to get a reverse mortgage. And, borrowers reported slightly higher overall satisfaction with their lives overall than non borrowers (people who got reverse mortgage counseling, but did not proceed to get the loan).
You are allowed to do absolutely anything you want with your reverse mortgage loan (after you have paid off any other mortgages or liens on your home). Here is how real life reverse mortgage borrowers used their money (survey respondents could choose up to 3 options):
- 37% used the money for everyday expenses
- 37% needed to pay off an existing mortgage (which can dramatically improve your monthly spending)
- 31% paid off other debt
- 29% did some home improvements
- 14% spent on health needs
- 13% helped family with the money
- 9% used the money to postpone other retirement income (delay the start of Social Security, retain savings, etc…)
- 7% made a big purchase
- 2% bought another property (vacation home, second home, rental property)
- 14% responded “other”
There are at least three key things you need to learn about when considering a reverse mortgage that are covered in the counseling session:
How Can You Receive Reverse Mortgage Proceeds: After paying off your existing mortgage (if applicable), you have at least 4 ways to receive your reverse mortgage loan amount. You can: get cash, have access to a home equity line of credit, schedule monthly payments or some combination of the above. Get a reverse mortgage estimate to start exploring these different options.
Reverse Mortgage Balances Increase Over Time: Reverse mortgages are loans. However, you are not obligated to make any monthly payments. Instead, for any money that you use from the reverse mortgage, you accumulate interest so the loan amount grows over time. You pay back the loan when you die or permanently move out of the home. When the loan comes due, you owe the value of the loan or the value of the home — whichever is less.
What is Your Responsibility for Taxes and Insurance?: It is very important to remember that even though you will not be making any monthly loan payments, you do need to continue to pay taxes and insurance on your home to avoid default.
A key question on the Ohio State survey asked whether the “money from the reverse mortgage lasted longer, shorter or about the same amount of time that the consumer originally anticipated.”
A full seventy three percent of the borrowers felt that the money lasted longer or about the same as they had anticipated. The reverse mortgage counseling session seems to do a good job of preparing borrowers for how to best use the money and prepare for a secure future.
If you are considering a reverse mortgage, you want to think about what impact it will have on your life? Find a reverse mortgage lender or get an estimate of your loan amount today and start imaging a better financial future.
