Palm State Mortgage Company has noticed that an established mortgage specialist, Jack Guttentag, has recently revealed the belief that reverse mortgages have gotten a bad rap as well as an undeserved bad rep in the public view.
According to Guttentag, a professor emeritus at Wharton, some seniors actually could “enrich their lives by taking out a reverse mortgage—if they do it the right way.”
This long-time advocate for borrowers explains that most borrowers do not typically comprehend how a reverse mortgage works. Usually this means that borrowers are taking all-out cash withdrawals rather than maintaining a line of credit, long-term. The line of credit can be a life-line as years go by, if handled properly.
According to a recent article in Forbes,Guttentag explained, “What they’re doing is using up all their borrowing power at a time when they may need it the least,”
So, you see, the function of a reverse mortgage is not really to take that long wished-for trip around the world or build a new west wing on your home.
If you do those things, Guttentag says. “Looking ahead, they’re still in the house, but they don’t have money to draw down.”
At Palm State Mortgage, we want you to realize that the first purpose of reverse mortgages is essentially to permit older homeowners (62 and up) to transform their home equity into a line of credit or monthly payments.
This made it possible so seniors could stay in their homes during retirement. When you understand this, the real name of the reverse mortgage makes total sense: Home Equity Conversion Mortgages or HECMs. You can check out some very informative resources at this online source. If you think of home equity income as a nest-egg for your most elderly years, the money only makes sense as an investment for your most elderly years of life. Palm State Mortgage says, “Watch out! You can not both break the nest egg and save it too!
Palm State Mortgage company wants you to remember five important details:
1. You are borrowing against your equity.
2. The loan balance grows over time.
3. It is true you do not have to pay off the loan while you are living in the home.
4. However you need to be certain that the home is where you want to stay because if you move or die, you will need to pay it off.
5. Put simply, you don’t have to “pay off the loan while you live in the home, but when you move out (or die), you have to pay it off, although never more than what your home is worth.”
Moreover, Guttentag states, “With life spans growing at an increasing rate, that quandary is increasingly being labeled a “retirement funds crisis. Seniors who own homes, however, have a valuable option. They can use a reverse mortgage to reduce the risk of outliving their money. The proviso is that they need to unlearn what they thought they knew about shopping for a mortgage.” Check out his online resource for a calculator and other resource materials to learn what he means!
Do Your Reverse Mortgage Homework!
That’s why we agree that borrowers need to understand the terms of the exact reverse mortgage they are buying. Lack of information can be very costly.
Palm State Mortgage thinks it’s a sad thing that some loan officials zealously over-sell reverse mortgages and are “sold” as all-cash withdrawals. We want you to understand that such lenders base profit by the amount of the initial loan. This is one of the reasons that reverse mortgages gained such a bad reputation.
Reverse Mortgages: A Balance of Discipline and Consideration
We know you do not have a crystal ball, but a good strong look at your prospective future should help to guide you, if you are considering a reverse mortgage.
Thank you for reading the blog at Palm State Mortgage Company, and we invite you to come back for our Part II of this topic in our next blog; we will be letting you know more about requirements for this type of loan.
Meanwhile, we sincerely hope you will read our previous article on the basics of the reverse mortgage.