I’m a teacher. I love to teach. I spent many years teaching high school in private schools, public schools, as a private tutor, as a public school tutor, and as a mother.
Unsurprisingly, one of my favorite things about being a reverse mortgage specialist is that I get to teach about a financial instrument that for many seniors makes possible a life of dignity, financial soundness, and independence.
There are two questions I am frequently asked. The first is why do a reverse mortgage (officially called “HECM”) instead of a home equity line of credit (or “HELOC”). The second is whether this is a good time to do a reverse mortgage.
So why do a HECM rather than a HELOC? The first thing of note is that a HECM is a type of home equity loan. However, with a “forward” home equity line, there are employment, income, credit, and debt-to-income qualifications that must be met. These can be tough qualifications to meet for someone deep in the retirement years – or even for one nearing retirement.
A second important difference, and one of the main attractions of the FHA reverse mortgage, is that there is never a payment required, so long as at least one person on the home’s title remains in the home. This creates a stark contrast to a forward HELOC, in which the homeowner must make a monthly payment. Drawing down a forward HELOC only to make a payment at month’s end is like using VISA to pay MasterCard – not lots of benefit there.
Though I could point to many additional advantages of an FHA HECM, I will mention only one other, namely the issue of getting “upside down.” Though home values in much of our region have been steadily on the rise, most of us are still understandably wary. We all know homeowners whose lines of credit were frozen when housing prices tumbled.
A reverse mortgage, however, is a non-cancellable line of credit, and only becomes due when the last person on title permanently leaves the home. (Property taxes, homeowners insurance, and normal home upkeep are still required.)
The second most common question I am asked is whether this is a good time to do a reverse mortgage.
The answer is an unqualified “Yes!” and here’s why:
Interest rates have never been lower than they are right now, and property values in much of the mid-Atlantic region have enjoyed steady growth for four straight quarters. Since a reverse mortgage is calculated on age of the borrower, home value, and interest rates, right now might well represent the most favorable conditions that have ever existed in the HECM’s 30+ year history. I’m a geeky numbers person, but you don’t have to be very good in math to know that a rise in rates, or a drop in home values, makes a long-term difference in the amount of funds available.
Remember, reverse mortgage was never intended to be a replacement for a sound financial retirement plan. However, it can play an important role in augmenting what is already in place, and slow the burn-through rate on other retirement funds.
If you are, or someone you know is, looking into reverse mortgage, give me a call. I always love hearing from you.
Laurie Denker MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant, President’s Club · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · LMacNaughton@MiddleburgBank.com · www.middleburgmortgage.com/lauriem
Visit my Informational Blog at https://middleburgreverselady.wordpress.com/