It's an option available to senior homeowners that they may not know about - a home equity conversion mortgage, also known as a reverse mortgage. It's something that's available to homeowners that are at least 62 years old and have a good amount of equity in their homes. That equity can benefit them in a variety of ways.
"The reverse mortgage allows them to access it in several different ways," said Michelle Hulbert, senior loan officer with Guild Mortgage. "They can use it to pay off an existing mortgage and basically eliminate their monthly payment, they can use it to set up a monthly income that they get every single month until they pass away, or they can access it in the form of a credit line that they can use for expenditures such as home improvements, medical, or travel, just to name a few."
One of the common myths, she says, is that this type of mortgage relinquishes ownership of the property. But that's not the case.
"The title is handled just like they had a regular mortgage," Hulbert said. "They keep ownership and only give up ownership when the home is sold or their heirs sell it."
These days, many are using this as a financial strategy.
"Ironically, need-based reverse mortgages represent a very small percentage of all reverse transactions," she said. "Most people are looking for enhancements to their financial strategies for retirement or the elimination of a monthly payment. So it's a great program for seniors to consider, or even for children of seniors to talk to their parents about, and maybe that will help them have a more comfortable and affordable lifestyle. We all know inflation has hurt our senior population especially."
The Federal Housing Administration handles the bulk of these loans, and FHA insurance helps protect borrowers.
"The FHA insurance covers the borrower in the event that the home is worth less than what they owe at the time of sale," Hulbert said. "So they will never have to owe more than what the house is worth; that's where the insurance comes into play. Seniors are a protected class so the FHA has put the stops in place to make sure they are covered and that is why the insurance guarantees they will never owe more than what the value of the property is."
Hulbert says she gets a lot of questions about how the heirs of the people that take advantage of these loans fare down the road.
"People do wonder about their heirs, are the going to be left with no equity or owing money," she said. "Well, we know they won't owe any money, but will they have any equity when the home sells? Think about appreciation; our market has appreciated consistently, as well as across the country, so if you're looking at a home that's appreciating and interest is accumulating, in theory you should still have an equity position when that home is sold. I feel strongly that unless a homeowner didn't take care of the home, or we had a major economic event, that they should be able to sell that home for a profit at some point in time."
She says it's not the best option for everyone, but it is a program that's underutilized.
"We look at our Baby Boomer population, not only in our market but in general across the country, and I think there's a lot more on this program that we can get out there," Hulbert said. "My goal is to educate our community about this amazing program."
She says the first thing interested homeowners should do is talk to a lender about all their options.
More information: https://www.guildmortgage.com/the-hulbert-brazil-team/
