I get asked a ton of questions from potential borrowers every year.One of the most frequent ones is, “Brenda, if you say reverse mortgages are so great, then why is there so much bad press about them?”
It all boils down to one major issue: lack of understanding.
While most media outlets are commercial driven, meaning they often have advertisers supporting their business that are competitors to the reverse mortgage industry…
Other news providers simply don’t take the time to adequately research the product, run the numbers, and factor in the multitude of borrower variables that might contribute to a reverse mortgage being the best product for certain populations.
My sole business focus for the past 15 years has been reverse mortgages.
My specialty is to arm potential clients with the most comprehensive information about this product so that they can ultimately make a decision that benefits them best.
Media providers simply don’t work with the same mandate – they are looking to satisfy their daily quota of providing some brand of interesting or shocking information to potential readers so their publication will log “views”.
They are certainly not interested in giving motivated borrowers an in-depth, thoroughly researched piece of literature that serves any purpose beyond holding their attention for the time it takes to read a page of text and look at the ads in the side-columns.
Having said that, I’ll be the first to admit: There are plenty of people I meet that this product simply won’t work for.
However, I find more often than not, that once somebody takes the time to thoroughly explain the ins-and-outs of reverse mortgage products available, many people find at least one of them to be the perfect solution for their long-term financial plan that will sustain them through their retirement years.
More importantly, while the media only covers the broad strokes of the reverse mortgage picture, originators like me (and my colleagues) take the time to consider each person’s specific life situation along with all the varied, intricate financial factors that they are faced with when crunching the numbers
Then we help them with their decisioning so they can decide what the most beneficial strategy is for themselves and their families.
If you can find a media provider that takes the time to do all of that, make sure to listen to them (and forward me their information because they’re a diamond in the ruff).
So why is it exactly that these naysayers can, with so little insight and information, make such outrageous, negative claims about the reverse mortgage industry?
That’s what I aim to sort out today…
Are Reverse Mortgage Fees Unaffordable?
This is one of the big issues that the press laments on.
Simply put, yes, there are fees associated with a reverse mortgage.
And in all honesty, these fees can seem “expensive” to the lay person with little experience in the mortgage industry.
However, when you take the time to look at them in detail (like I do in my articles about reverse mortgage fees here & here), you will find that these fees are commensurate with other mortgage products currently on the market and are in no way a barrier to efficiently utilizing the equity in your property.
Without going through a line-item explanation of the fees associated with a reverse mortgage, many reporters will simply suggest that the “exorbitant” fees are unfair to the defenseless seniors who opt for a reverse mortgage.
What they fail to disclose is that reverse mortgage fees include the following:
- Escrow fees
- Document preparation fees
- Recording fees
- Credit report fees
- Title insurance fees
- Survey fees
- Flood certification fees
- Mortgage insurance premium fees
Do any of these fees sound familiar?
They should, because many of these are fees you had to pay when you took out your traditional mortgage upon initial purchase of your home.
Reverse mortgage “haters” often point out the required Mortgage Insurance Premium (or MIP) as one of the “extreme” charges levied against borrowers when many traditional mortgage lenders require borrowers to pay monthly Private Mortgage Insurance (or PMI).
Each product exists for a good reason – to protect both the borrower and the lender alike from changes in real estate values and from either party becoming unable to execute their end of the mortgage bargain.
The comparison of these products breaks down like this:
- MIP (reverse mortgage):
- Paid upfront at closing.
- Required for all reverse mortgages.
- Based on home value and amount of equity utilized.
- Ranges anywhere from 0.5% to 2.5% of appraised home value.
- Monthly cost of 1.5% of the outstanding loan added to your balance.
- PMI (traditional mortgage):
- Paid monthly along with mortgage payments.
- Required if there is less than 20% equity in property being purchased.
- Based on credit score and size of down payment.
- Range anywhere from 0.3% to 1.5% of original loan amount.
Any way you look at it, there’s very little difference between the fees associated with these types of mortgage insurance.
Differences are negligible at best and represent small amounts of money.
Most importantly though, let’s remember the one huge fact that these negatively skewed articles always (purposely) leave out:
With a reverse mortgage, unlike a HELOC or traditional mortgage, you never make a mortgage payment!
That fact in and of itself saves you thousands and thousands of dollars that you would normally be on the hook for monthly with other mortgage products designed to access your equity.
Is There a Reverse Mortgage “Crisis”?
The best way to get what is referred to as “click-bait” on the internet is to shock and scare readers with provocative headlines.
Have you ever seen titles like this?
“Reverse Mortgages: A New Sub-Prime Crisis?”
“Reverse Mortgage Meltdown Imminent!”
While they’re certainly catchy and mildly interesting, you’ll find that almost every article on the internet with such a title has very little in the way of substantive facts to backup their claims.
Remember, most of these guys are looking for 1 to 5 minutes of your time spent on their page so they can sell advertising space.
They care little about the content they’re providing.
First of all, there has never been a “Reverse Mortgage Crisis”.
The “Sub-Prime Mortgage Crisis” of the early 2000’s had nothing to do with the segment of the population that reverse mortgages service.
Not only that, but they’re completely different products.
The sub-prime crisis erupted because of lenient lending practices employed by banks that led to borrowers being unprepared to repay loans as interest rates increased.
Therein lies the reason why there would never be a reverse mortgage crisis – the bank pays you, you don’t pay the bank.
Simply put, other than maintaining your property, you never have to worry about skyrocketing mortgage payments or ever-increasing interest rates jeopardizing your home ownership.
And with the MIP failsafe mentioned above in place, each party to the loan is protected from the other not being able to uphold their responsibilities.
Without a doubt, a reverse mortgage is one of the safest uses of home equity currently available.
Not only does it alleviate you of having to make monthly payments, but you get to stay in your house, and you get to tap into your equity without the fear of losing everything you’ve worked years to earn.
If you’re curious, I encourage you to read these “doom-and-gloom” articles so you can see for yourself.
They’re all fluff and I challenge you to find one real “fact” that refutes any information I provide here in my knowledge base of articles.
Who Should I Ask About Reverse Mortgages?
The answer to this one is simple: ask somebody you trust.
The second part to that answer is: make sure it’s somebody you know has intimate knowledge about the product you’re researching.
In this case, that includes:
- Reverse mortgage originators (that’s me)
- Reverse mortgage lenders
- Reverse mortgage associations (here)
- Government regulators (FTC & HUD – here & here)
- Friends and family who have invested in reverse mortgages
Otherwise, reporters are simply writers selling a product – their article.
They have no real investment in the product and little to no expertise regarding it.
And make sure to listen to yourself – do your research and form opinions based on your reading.
When you have a question or would like to take the next steps, feel free to contact me anytime via email: [email protected] or by simply clicking on the button below.
It’s a shame that in this day and age, not all press outlets can be trusted to report the facts without bias.
But at the very least, those with the experience and knowledge afforded them by years of service in the industry can reach out via the internet to help those looking for the best, most useful information available.
Check back soon for Part 2 on this topic – there’s still much more to clear up.