Issue 12.14
Today – radio, television, newspapers and magazines are touting reverse mortgages more than any other time. Current and former movie and television stars are running commercials for reverse mortgages and mailing free cd’s to all that are interested.
Why the craze? Why are they so popular and what makes them any different than what our parents looked at 15 years ago? Some client’s respond, “All I have heard is that they are bad for the client, so what are the bad aspects?”
I hear this nearly every day, and because we fund more of these than all other banks, credit unions and other lender’s combined in Washington County, let me explain the simple changes, and why it is so popular today!
A lot has changed in banking over the past six years and certainly a lot has changed in the mechanics of a reverse mortgage or what we refer to as the HECM FHA insured senior loan. 60% of our senior client’s today are using this loan when buying a home or re-financing their current home. That is why we believe, if you’re 62 or older and you’re buying a home today or you are still making a mortgage payment on your current home, then we think you should take a serious look at the HECM loan.
Here are some of the changes that have made the reverse loan so popular:
First, As we mentioned, FHA now allows us to purchase a home with this loan. This is the biggest change that we have seen because we don’t get into the traditional options and mechanics of a reverse mortgage. Clients are simply saying, “I can buy a home for $300,000 for only $150,000 down payment and have no mortgage payments for life. We simply can retire with much more flexibility than we thought we ever could.”
Second, if you like your home and you’re planning on staying in it during your retirement years, then you don’t have to own it free and clear as you used to. This is the second biggest change that improves the popularity. Most of the loans we do are clients simply trying to stop making mortgage payments on their current home. They may have a home worth $250,000 and they still owe $130,000 and they just want to roll this 30 year fixed loan over to the FHA insured loans so they can stop making mortgage payments.
Third, FHA now administers and insures all of the reverse loans. So they are one of the most regulated loans in the country today. Providing more safety and benefits for the client and no more horror stories of equity sharing programs that went along with some of the old reverse mortgage programs.
Fourth, the interest rate is now into a competitive rate with the market. 4.99% with no origination fees competes with the conventional market. Clients are looking at the loan more as a fixed loan for life with an option to make payments when they want, or never have to make payments for the rest of their lives. They look at it as an “option” loan in that they can pay it down, off or never through their lifetime. This is tremendously flexible compared to conventional loans.
Whether the senior HECM loan is right for you is a big question. Consider all your options. Each situation and circumstances require careful considerations.
Brandon Hansen is a senior mortgage banker for Cherry Creek Mortgage with offices in St. George and SunRiver. He is the host of “Senior Weekly”, each Tuesday afternoon on 1450 AM and Thursday mornings on 890 each week. www.cherrycreekutah.com 435 525 2266/ 435 773 4164.