A mortgage finance expert describes how reverse mortgages can potentially act as a “lifesaver” for some seniors in specific financial situations, along with offering advice related to home equity levels and optimal financial planning strategies related to taking a reverse mortgage out. This is according to a new piece running down mortgage tips for seniors at U.S. News & World Report by contributor Bob Musinski.
Discussing his own personal experience with reverse mortgage products, Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America describes to U.S. News how his own parents benefited from engaging in a reverse mortgage that helped them meet their needs by funding daily expenses and medical bills.
“It immediately frees up cash flow,” Haynie says about the reverse mortgage. As long as the borrower can pay the associated taxes and homeowners insurance, “it can be a boon to people on a fixed income who need extra money,” the article reads.
There are also two major keys for a senior thinking about getting a reverse mortgage, Haynie says. The first is to ensure that there is enough equity in a potential borrower’s home to justify the loan, with Haynie recommending a figure of around 50 percent.
The second tip is to engage in long-term financial planning in order to get as full a picture as possible concerning how a reverse mortgage will affect a borrower’s financial situation.
“You don’t want to run up the balance on a reverse mortgage and get caught with a balance that exceeds the property value, if that value plunges,” the article says of Haynie’s advice. “Thankfully, most reverse mortgages are insured by the Federal Housing Administration, which means if you or your family sells the home to pay off the loan, you won’t have to pay the difference – if there is one – between the sale price and the mortgage, as long as the sale is for at least 95 percent of the current appraised value.”
That’s not to say that there is no risk to be found if a reverse mortgage is leveraged for some seniors, however, according to John J. Vento, a certified public accountant, certified financial planner and author.
Relating concerns about some seniors who are sold on reverse mortgages potentially being persuaded to stay in a home they can’t really afford, Vento warns that as every month goes by, the senior borrower will owe more in the property and have what he calls a “false sense of security.” Because of this, it’s often better to sell a home instead, Vento says.
Other concerns expressed include that there are fees associated with arranging and closing the loan, that interest is not tax-deductible and the associated rates could go up, and the fact that the borrower is still responsible for home costs such as insurance, property taxes and maintenance.
“When you’re a senior, you shouldn’t be overleveraging yourself,” Vento says. “You shouldn’t do it when you’re young, in my opinion, but for sure not when you’re 60 or over.”
Read the original story at U.S. News & World Report, which also includes tips for seniors related to forward mortgage borrowing.