Reverse Mortgage Update – Q & A with Howard Platte, Golden Empire Mortgage

The reverse mortgage products offered today have gone through a major makeover of sorts in recent years in the pursuit of consumer protection. The overwhelming majority of the reverse mortgages originated in recent years are the FHA Insured Reverse Mortgage product known as the HECM, an acronym for Home Equity Conversion Mortgage. These are some of the questions I have received recently from clients.

Q: What are the recent changes I heard of called Financial Analysis?
A: Financial Analysis is a relatively new qualifying process that is required for all new reverse mortgage borrowers after April of 2015. The purpose is to determine if the borrower will have the ability to maintain the taxes, insurance, upkeep and maintenance of the home as well as meeting all of their other financial obligations and household expenses.

Q: Why was this Financial Analysis process put in place?
A: Before this process was required, anyone with sufficient equity over the age of 62 was eligible for a Reverse Mortgage as long as the property met minimum FHA property standards. This new process will help to add an additional measure of protection by helping to assure that a senior’s equity is not being used irresponsibly by incurring the costs of a reverse mortgage only to be faced with moving or foreclosure a short time later because they could not afford the other related obligations of homeownership and their other living expenses. One unfortunate consequence of this new process is that some borrowers who thought this would be available as a financial safety net may find that it is now unavailable to them if they no longer qualify due to the new guidelines.

Q: My Financial Advisor mentioned putting a Reverse Mortgage in place now even though I don’t need one. Why is that?
A: Many Financial Advisers realize that a reverse mortgage has certain features that could provide a measure of financial security and risk avoidance by allowing a person to access the funds from a Reverse Mortgage instead of depleting savings or tax free retirement accounts earlier than preferred. It can also be used as a method of creating tax free income allowing retirement investments to continue to grow tax free. By putting the Reverse in place now, even if not needed, the loan proceeds are available and accessible when needed regardless of any new changes that might be made to the reverse Mortgage program.

Q: Wouldn’t it cost a lot of unnecessary interest by borrowing money I do not yet need?
A: The money that is available but not yet accessed remains in a line of credit to be used in the future. Interest charges only accrue on money actually drawn and borrowed. No interest is charged on the funds available but not yet drawn.

Q: Wouldn’t there be more money available in this line of credit if I just wait until I am older?
A: One of the most unique features of a Reverse Mortgage line of credit is that any unused portion of the line of credit feature actually continues to grow every month that it is not accessed. So by putting it in place before it is needed, the amount available is actually growing at a rate higher than would have been available by waiting to obtain it in a later year.

Q: I would like to have a meeting with my financial adviser to discuss this. Is it possible for you to meet with both of us?
A: Yes. We work very closely with legal and financial advisers of all types including CPA’s, Certified Financial Planners, Estate Planning Attorneys and Insurance Specialists as well as other family members to be sure that the financial goals of our clients are achieved.

Q: Is it true that a Reverse Mortgage can pay off my present mortgage and provide me with additional monthly income?
A: The proper answer is that it depends. There are specific maximum limits for the amount of funds available for both these purposes. These limits are based on the payoff balance of your present mortgage, the present value of your home and your age.

There are many other questions that should be carefully considered by anyone facing this important decision. It needs to be done with an eye towards your personal situation and the
individual goals you seek to attain. It is helpful if that decision is made with your other trusted advisers in the conversation if possible.

Howard Platte is a contributing writer and veteran of over 30 years in the mortgage business. He is recognized as an expert on Reverse Mortgage Financing as well as traditional mortgage financing. He can be reached at his offices at Golden Empire Mortgage 714.572.0727.