Is a reverse mortgage right for you?
Today I'm here with Gregg Baily of Premier Bank. I use these guys and their services because I don't have time to babysit both my client's business and my business. So they're very helpful to me with the work that I do.
What I'm here to tell you about is just the other day a retired gentleman came into my office and handed me a foreclosure notice. I asked him what it was all about, and he told me that he had not managed to change his lifestyle after retirement. He quit making his house payments because he wanted to maintain his lifestyle.
One of the things that people revert to when that happens is what we call a reverse mortgage. This is when you start getting money from the equity in your house. When you're getting into your twilight years you don't want to be doing this.
So, Gregg here is my mortgage expert. He's been in the business for 20 years and should be able to help us out with this problem. He's going to show us the pro's and con's of a reverse mortgage.
Before you can get a reverse mortgage you have to be counseled about reverse mortgages where a loan officer or lending institution cannot be present. These are independent, 3rd party government-approved counselors. You also have to pass a test before you are eligible to apply for a reverse mortgage. These counselors can spot if the prospective borrower will be an appropriate candidate for this loan by asking basic questions about the borrower's knowledge of their own finances. Also, any family member can attend this meeting, but no lenders are ever allowed.
When you do go through with the application process, it is the same as getting a loan for a home with inspections and appraisals. Once this is done, the lender starts making payments to individuals every month.
There are two options for this kind of mortgage. One is called a Monthly Income Stream, and is based on the value of the home and the age of the borrower or borrowers.
Otherwise, a borrower can take a lump sum, and there are many reasons why you could take one or the other, or both.
You do have to remember that you are spending the equity out of your house with a reverse mortgage. There is no hidden agenda, this mortgage simply allows a homeowner with equity in their home to continue living in that home. However, the consumer will be spending their equity, so they will have less equity at the end of a mortgage. How much equity is lost depends on the loan and how long you keep it.
There may come a time where their equity is gone and they may have to start paying back, but luckily there is no payback required unless a borrower moves out of a home for 12 months or more. Sometimes older couples will have to leave the home for medical rehab, but as long as they come back within 12 months, there is no repayment required. Even if a borrower owes more than the house is worth, they do not have to pay back anything as long as they live in the home.
However, interest will accrue on every dollar they borrow until the loan is paid off. There are options that allow for monthly payments to continue like an annuity, but there are ways to allow an income stream to continue no matter how much annuity is left in the house, or until the borrower passes away or moves out of the house. This number would be smaller than if someone took a lump sum at the closing to pay off a debt or spend in some way.
The #1 thing you need to remember about reverse mortgages is that you will have much less equity (if any) than when you bought the house. There is no way around it.
So, if you're interested in a reverse mortgage or would like financial advice, contact Gregg at (402) 715-4696 or shoot him an email at gbailey@premierbankne.com
Thanks for watching!
