Are you a baby boomer? Do you know a baby boomer? If you are at least 62 years old, or you know someone who is 62 years old and your or they either own a home, or want to buy a home, then you, or they, might be a great candidate for a reverse mortgage.
Reverse mortgages are becoming very popular in the mortgage business. Why? The simple answer is - Baby Boomers. According to the National Council of Aging, there are 77 million of them in the US and many own their own home, or owe very little on their homes. We as a society need to take care of the Baby Boomer generation and the reverse mortgage is one great way to do this.
Are you retired or retiring and either on or going on a fixed income? Is this fixed income enough to match the income you had to match the quality of life that you are used to? Could you use some extra income? Well, if you are like me, we could always use more income. One way to get this extra income is to use the equity in your home through this loan program to pay yourself.
How Does A Reverse Mortgage Work
The reverse mortgage is just what it says - it pays you for the equity you have in your house in the form of a monthly payment or a cash lump sum or a combination of the two. In any case, the reverse mortgage is designed to pay you versus you pay the mortgage.
In my opinion, the popularity of this mortgage has been hindered by two major factors. The first factor has to do with the loan program itself. The second factor has to do with the culture of the mortgage industry surrounding reverse mortgages.
Disavantages and Dangers of the Reverse Mortgage - These Are Old Reasons
Historically, the reverse mortgage has been a difficult loan to sell my customers for several reasons. First of all, it has been expensive to get a reverse mortgage. Fees for this loan are higher than the fees for a regular mortgage. Second, it has been a harder loan to qualify for as it has many different requirements. Third, the reverse mortgage interest rate has been based on an adjustable rate. This third factor is very tough to sell to folks over 62 years old. This generation grew up with the traditional 30 year fixed term mortgage so offering a mortgage based on an adjustable rate has been like swimming up Niagara Falls.
The second factor which has lead to the unpopularity of the reverse mortgage has to do with several factors related to the mortgage industry itself. First of all, up until recently, the reverse mortgage has solely been a loan offered through the FHA. A mortgage company has to undergo a rigorous licensing process to sell FHA mortgages and as a result, not every mortgage company is licensed to sell FHA mortgages. Thus, many mortgage companies couldn't sell reverse mortgages. There are a variety of good reasons why a mortgage company wouldn't want to go through the FHA licensing process. One reason is that in some metropolitan areas there is no point to become FHA 'qualified' as housing prices are too high to offer FHA loans. One requirement of FHA loans (and one of the old requirements of the reverse mortgage) is a maximum loan limit. An FHA loan cannot exceed a predetermined loan limit so in these 'high cost' metropolitan areas, the FHA loan is in very low demand.
The third major factor for the unpopularity of the reverse mortgage has to do with the requirements of it for a homeowner to get it coupled with the mortgage professional not working for a company who could sell it. I know for me that early in my career, I couldn't sell reverse mortgages so I never learned about them. I had heard that they were 'weird and complicated' so I decided to not put much attention on them. Instead of looking into the benefits of a reverse mortgage for my customers I would brush over them, and find other loan products to sell my customers. But as I have matured in my career, I have learned about them, and I do discuss them when I need to. I still don't offer them, but I do refer them to my friends in the industry who do offer them.
Thus far, I have covered the some of the past negativism surround reverse mortgages. Now I'll examine why the reverse mortgage is 'all the rage' as I suggested at the beginning of this article.
Advantages to Reverse Mortgages - The New Era
The rules of the reverse mortgage are changing. It is getting easier for non FHA qualified companies to sell them. Congress and state governments are looking at revising the qualifications to getting a reverse mortgage. I have even heard of tying the reverse mortgage into long term health coverage. This makes a lot of sense since the Baby Boomers of today are more and more in need of health care. Other changes that have either been implemented or are on the horizon are increased loan limits to allow higher value homes and loan sizes. Also, the interest rate is being fixed so that it is a more stable and consistent loan.
All of these changes are great for you and the rest of the Baby Boomers, but what about those of us in the industry. One change I have heard about is a lender that has rolled out a jumbo reverse mortgage and has started to allow mortgage companies who are not FHA approved to sell its jumbo product. I'm sure we'll see more changes in the future that open this program up to more people both on the consumer side of it and on the provider side as our Baby Boomers need it more and more. The increased availability of these products like the laws of simple supply and demand will result in the price of these mortgages decreasing too. This is good news for all of us.
Take another look at the reverse mortgage, it has come a long way. Maintain your qualify of life and never have a mortgage payment again.
