Are Reverse Mortgages the Devil?
About a year ago, the ole Boss Chad and I were chatting in his office and the topic of reverse mortgages came up. We both agreed that they just seemed crooked. Six months later, Chad did one. Let’s find out what happened, and whether or not Chad has gone nuts.
An Interview with the ole Boss, Chad Helmcamp
Just the Assistant: First thing’s first…are you a crook, because I thought we both agreed reverse mortgages are ca-reepy!?
Ole Boss Chad: Of course not. My original stance on reverse mortgages was that they had the potential to be abused, but my first experience proved very successful, and I had no idea the positive impact it could have on someone’s life.
JA: What is a reverse mortgage, anyway?
Boss: A reverse mortgage is when someone takes out a loan against their home, and instead of making a monthly mortgage payment, the equity from the home is used to make the payments, and the borrower ends up with either a lump sum of money, monthly payments to themselves, or an account from which they can make draws. 90% of people take the lump sum.
[Just the Assistant Note: I should know what equity is because I’ve worked with mortgage bankers for a lot of years now. Alas, I’ve been spending those years on Anthropologie’s website. I had to ask Chad what equity is. Equity: Let’s say your home is worth $200,000 and you don’t owe any money on it, that means you have $200,000 worth of equity. You owe $30,000? You’ve got $170,000 of equity.]
JA: Who gets these loans? Why?
Boss: The ideal candidate for a reverse mortgage is a person over 62 years old who owns their home free and clear, and has nearly exhausted their savings and is having a hard time getting by on Social Security.
JA: So basically you’re saying they take out a loan from the value of their home, and they get the money? But what if they live so long that it comes time that they’re supposed to pay the loan off? What then Boss? Is the little elderly lady out on the streets?
Boss: Because this is a government insured mortgage (and the borrower pays this insurance fee up front out of the equity of the home), the little elderly lady will be able to live in this home for as long as she lives, never have to make another mortgage payment and never worry about who is going to pay
the mortgage off. That’s what the insurance buys. Complete peace of mind for as long as she lives. That’s one of the misconceptions about this type of mortgage.
I should also note this is an expensive product, but that’s because the benefits of the product are substantial and the risk to the government is substantial. But the money comes from the equity from the home. It’s just something people need to
keep in mind.
JA: So tell me about the folks you worked with?
Boss: The couple I met with were in their late seventies, had lived in a nice house for 40 or 50 years that was worth about $500,000, but the couple had run out of most of their savings and was having a hard time even buying certain foods they wanted from the grocery store. But they knew they had this really nice home, and they didn’t want to move at their age.
Their daughter actually found me online. After doing some research on me and determining I am a good guy, she came to us on behalf of her parents.
JA: Then what, ole Boss?
Boss: I met with all four of them and explained everything. Then the couple had to go to counseling.
[Note: Not like lay on this leather couch and tell me what you see in the inkblot counseling. Because this is a government insured loan, the ole government makes sure people know exactly what they’re getting into, thus, lots of hoops through which to jump, which is a good thing. The counseling is required to make sure the borrower isn’t working with a crook. But Chad’s not a crook. He’s kind and smart. So this couple left counseling giving themselves a nice pat on the back for finding such a great mortgage banker.]
Boss: It really helped this family out, and the couple’s kids were really glad that their parents were taken care of. For the right person, this is a great product. It was so nice to see how relieved the couple was when they found out how much money they were going to get.
Actually, a few years ago I met with another couple about doing a reverse mortgage, and the adult children came along. Well, the parents were talking about how the first thing they were going to do with the money was buy the kids a new car.
Boss: Yeah, we didn’t do that loan. Like I said, for the right person, it’s a great product.
JA: Well ole Boss, this would’ve been a much more interesting post if we’d discovered you’re a crook. Oh well. Go answer all those phone calls!
If you’d like to talk to Chad about reverse mortgages for your parents (or yourself, for my young at heart readers), drop him a line at email@example.com or call him: 713.826.8136.