Experts Say that Reverse Mortgage Borrowers are Getting More Sophisticated
It used to be that reverse mortgage borrowers were seniors who were at the end of their financial rope. However, according to experts, the types of people who are applying for reverse mortgages is evolving.
While people still get the loans to make ends meet, these days reverse mortgage borrowers are more likely to be financially stable and are looking for ways to leverage their home equity to strengthen their overall retirement plan.
There are at least a few reasons why reverse mortgage borrowers have become more sophisticated:
1. New Reverse Mortgage Rules
Two years ago the U.S. Department of Housing and Urban Affairs (HUD) instituted new regulations for reverse mortgages. Among the changes, HUD decided that all potential reverse mortgage borrowers must undergo a financial assessment. Lenders now look at the income, assets, monthly expenses and credit history of all reverse mortgage borrowers (much like they do for other types of home equity loans).
The assessment process is designed to make sure that the applicant can continue to afford property taxes and insurance on their property for the rest of their lives.
Some reverse mortgage borrowers used to get into trouble and go into foreclosure because they could not afford their homes even with the reverse mortgage.
Now, if you are able to get the reverse mortgage, you are assured that it is a sustainable financial decision for your household.
2. New Research Promoted Use of Reverse Mortgages as a Sound Financial Strategy
Over the last few years various economists have done detailed analysis and charting of the pros and cons of using reverse mortgage loans as part of a sophisticated personal finance strategy.
These experts concluded that even with the closing costs and potential interest, reverse mortgages can actually improve the overall wealth or financial stabilitly of some borrowers.
Explore why wealth advisors recommend reverse mortgages and some of the smart and sophisticated ways you can use a reverse mortgage.
3. Shifting Perceptions
More people know about reverse mortgages, and due to improved regulations the loans are trusted now more than before.
4. The Mass Affluent Want a Back Up Plan
Connie Cline, a reverse mortgage counselor with HOPE in Charlotte, N.C., is quoted on ReverseMortgageDaily, an industry blog, as saying:
“I see fewer and fewer cases where it [the reverse mortgage] is a last-ditch, desperate measure. I see more and more people of wealth, what they call the ‘mass affluent,’ who have other assets and other ways of managing things, but they want to have an option during downtimes in the market, or they want to establish a credit line and just let it grow as an optional thing to use in the future. We’ve shifted from the low- to middle-income people who have no other assets — and it’s the only way they can go if they don’t want to sell and move — to people with many other options. I still get a few of those but, boy, not like it used to be.”
What is the Process for Getting a Reverse Mortgage?
Depending on how ready you are to get the loan, securing a reverse mortgage usually takes between 30-60 days.
There are a few steps you will go through. They do not necessarily have to happen in this order, but you should probably check off the following tasks:
1. Educate Yourself: Getting a reverse mortgage is a big financial decision. Reading articles like this one is a good start. The more you know the better. Here in an online guide to reverse mortgages.
You may also benefit from taking the reverse mortgage suitability quiz. This short test can help you assess whether or not a reverse mortgage is a good decision for you.
2. Estimate Your Potential Loan Amount: To sanity check your expectations, you might want to estimate your reverse mortgage loan amount using a reverse mortgage calculator. However, your exact loan amount can only be determined by a licensed lender, in writing.
3. Assess Alternatives: Even if you think that getting a reverse mortgage is the right decision for you, you should still assess alternatives.
4. Find Lenders: Next you will want to find a reputable lender or even multiple lenders so that you can find the best rates and lowest fees.
NewRetirement can match you to lenders who have been thoroughly screened. Feel free to call us at 1-866-477-0404 to speak to one of our reverse mortgage specialists.
5. Meet with a Reverse Mortgage Counselor: Reverse mortgage counseling can happen at any time, but is required before you can complete a loan application. You may want to schedule your reverse mortgage counseling session after you have started talking with lenders since counseling fees can range from $85 to $130. Some agencies work through government grants and may be able to subsidize the cost of your counseling. Some lenders may be willing to help you pay for your counseling through closing costs.
Learn more about reverse mortgage counseling.
6. Apply and Decide How You Want to Take Your Loan: One of the most important decisions you will make during the loan application process is to figure out how you want to take your money. After you pay off any existing mortgages or other loans against the home, you can take money as any of the following options:
- Lump sum
- Monthly payments
- Line of credit
- Any combination of the above
7. Compare Loan Offers: If you are getting reverse mortgage loan estimates from a variety of lenders, be sure to ask them to give you the Total Annual Loan Cost (TALC) rate. The TALC rate will let you compare the offers on equal terms and find the best reverse mortgage.
Another way to compare different loans is to show your offers to your reverse mortgage counselor. The counselor should be able to help you compare interest rates, rates of home appreciation, credit line options and more.
8. Processing, Underwriting and Closing: During this process there are appraisals, home inspections and various other paperwork.
9. Disbursement: Upon disbursement, you have access to your money and this is the stage when your reverse mortgage is used to pay off any existing mortgage or other loans against your home.