Seniors buying a home now fall into three groups: those who pay all cash, those who pay all cash and plan to take a reverse mortgage later, and those who take a reverse mortgage when they buy, writes Jack Guttentag in a recent Philadelphia Inquirer article.
The recent launch of a reverse mortgage rebranding effort is attracting more attention to the product, especially from media outlets. Reverse mortgages are also being pushed very heavily to financial planners and CPAs as a financial planing tool, mortgage brokers say.
Regulation changes have made reverse mortgages more accessible to seniors who might previously be ineligible for the program, says Guttentag, a.k.a. The Mortgage Professor, also noting instances in which a reverse mortgage is not a good option.
Prior to Congress’ authorization of the home equity conversion mortgage (HECM) in 2008, the senior who wanted to combine a purchase with a reverse mortgage but could not afford to pay all cash had to use a forward mortgage to finance the purchase, then repay it by drawing on a reverse mortgage.
“Because that senior had to qualify for the forward mortgage the same way any other buyer would, inability to document sufficient income or credit could bar the way,” he says. “And, the senior who did qualify had to pay settlement costs on both mortgages.”
The HECM program allows seniors to buy a house and take out a reverse mortgage at the same time. Qualification requirements for forward mortgages are avoided, with only one set of settlement costs.
On the flip side, those looking to have a new house built to their specifications can’t finance construction with a reverse mortgage, Guttentage says, pointing to the program’s requirement that seniors using a reverse mortgage must occupy the house as their permanent residence within 60 days of purchase.
And, a a likely raise in interest rates from the unusually low rates that have prevailed will also affect whether a reverse mortgage is a good decision.
“Higher rates reduce the amount seniors can draw under a reverse mortgage,” he says.
Read the full article here.
Written by Cassandra Dowell