Reverse Mortgage Loans Are Kinder and Gentler After Changes
In the past few months, since the changes to the reverse mortgage brought the product back to basics, many financial planners are finally seeing the advantages, not only to the changes, but also to the program itself.
The reverse mortgage was never created to be a “loan of last resort,” even though many borrowers used it as such. In fact, it was created as a way for borrowers to age in place comfortably and use the equity they have built up throughout the years. In all honesty, the reverse mortgage loan was meant to be an investment like any other, one that would secure considerable funds for the future.
This is what the changes have accomplished in the few short months since they were implemented. They have placed the reverse mortgage loan back on the proper trajectory as an alternative to other established means of retirement, like social security benefits and stock options.
An article published by the Wall Street Journal, in fact, has named the new reverse mortgage loan as “kinder and gentler” and stated that the tighter regulations on the product is a safeguard for future borrowers, ensuring that they will have enough funds to last throughout their retirement.
In the past, many borrowers were in hot water when they took out all their funds, in the form of a lump sum, and left nothing to pay their financial obligations.
The article makes a point to distinguish the reverse mortgage loan from a forward mortgage or home equity line of credit by calling it more “complicated.”
However, I believe that nothing which is explained fully and many times over should be confusing or complicated. Borrowers who want to obtain a reverse mortgage are required to attend reverse mortgage counseling with an uninterested, third party counseling service.
Counseling is the first line of defense for borrowers, providing them with crucial information they will need to fully understand the loan. In addition, I sit down with them and discuss the product as well, going sheet by sheet to ensure they understand what the reverse mortgage is and what will be expected of them if the loan closes.
In addition, the new regulations stipulate that borrowers can only take up to 60% of their available equity during the first year. This is another one of the safeguards created for borrowers who are thinking about getting a reverse mortgage in order to supplement their retirement.
This allows borrowers to use their equity as necessary while still having enough to pay their financial obligations.
Lori Trawinski, a policy advisor who specializes in reverse mortgages at AARP stated:
“The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations.”
As with any business decision, borrowers should be involved every step of the way and make sure they are working with a licensed professional. If there is something they don’t understand, there is no better time to ask than during counseling or when a professional is sitting in front of you.
The time to consider your options is now that the new reverse mortgage loan is “kinder and gentler.”
If you want more information on the reverse mortgage program give PS Financial Services a call at (888) 845-6630 or via email at info@PSReverseMortgage.com. We do not pressure those who inquire. We are simply here to help.