Issue 12.15
What is a better option when financing a home as a Senior Today? Should I go Conventional or use a Reverse Mortgage?
For the past four years we have funded more reverse loans than all other lenders in the county combined. We nearly finance a reverse loan every other day as we are the only direct FHA HUD HECM lender in the county today.
What people don’t understand is the other days of the week we are funding conventional loans. To say that a reverse loan is better in retirement or a conventional loan is better in retirement is irresponsible unless we look at each situation with all income assets and health just like any financial decision we make.
Today, we find that most of our client’s lean towards the reverse purchase when they are buying a home today versus a conventional loan. If you sell a home in California for 300,000 and you want to buy a home here in southern Utah for 300,000 you can purchase the home for roughly half the price or 150,000 and keep the rest of your money in savings while having no mortgage payments for life with the reverse purchase option.
With a conventional loan, as we are all familiar with it works the same, other than you will be making a mortgage payment most likely for the next 30 years. And, you are using your retirement monies or fixed income out of your retirement to make that mortgage payment, thus depleting our savings.
If the concern is how much equity passes to your heirs or kids, then clients will keep a conventional loan. If your kids are doing fine or you don’t have any direct heirs or you have as many as I do, then does it really matter how much equity is in a home when you and your spouse pass? In a conventional loan you are making payments towards the equity in a home that will never ultimately benefit you and your spouse but will have more equity in a home for your heirs to share upon your death.
Ultimately, if you have a million dollars in retirement then pay cash for your home or if you are in a home that is paid for then most of my client’s will just keep doing what they are doing if it is not stretching their savings. One of my concerns is simply that if I lose a client in a husband and or wife, I usually lose income. I lose the lower of a social security or pension or other and then it makes it that much more difficult to continue to make a mortgage payment with reduced income.
If you are in a high tax bracket and your income is strong and will remain strong during your retirement that you are not concerned about ever making the home mortgage payment for the remainder of your retirement then you can save interest and fees by taking out a conventional loan and simply make payments during your retirement…
But, with that said, more than half of our client’s today are choosing the reverse mortgage if they have a mortgage payment that they are trying to eliminate or if they are purchasing a home to retire in and only want to put half into the home and keep the rest of their money in their savings for retirement.
Please consult a licensed financial advisor and or direct HUD lender to look at your entire mortgage options. Client’s need to be informed about all of the pros and cons in all decisions especially when retiring and deciding on a financial plan with your home over your retirement.
Brandon Hansen can be contacted at 435-673-4773.