California Reverse Mortgages

How A Reverse Mortgage Can Be A Game-changer

Important information for everyone, from seniors and adult children to professional advisors and realtors.

Reverse mortgages can provide solutions for a wide range of financial challenges faced by seniors, like late-life divorces, downsizing, or in-home care needs. Attorneys can utilize reverse mortgages in late-life divorce settlements, financial advisers can help seniors explore investment opportunities with this new cash flow, and realtors can look to reverse mortgages when helping a client buy a new home.

Many people are not aware of these unique opportunities where a reverse mortgage can be a game-changer for seniors.

What is a Reverse Mortgage?

For homeowners 62 or older, a reverse mortgage can be used to tap into a portion of the home’s equity when it’s needed. There are a few common misconceptions around reverse mortgages, leading to certain concerns. With recent shifts in fees and other improvements made by The Department of Housing and Urban Development, the reverse mortgage loan system is stronger than ever, and poses even less risk than before. The better reverse mortgages are understood, the better they can be used as the tool they were designed to be.

Common Misconceptions about Reverse Mortgages

Reverse mortgages, while complex, aren’t abstract—they’re really no more complicated than withdrawing money from an investment portfolio or taking out a traditional mortgage.

Misconception: A reverse mortgage means the bank owns the home.
Under the loan terms, the borrower remains the homeowner. In actuality, a reverse mortgage is just another kind of home equity loan (like a traditional mortgage) that does eventually get repaid. A reverse mortgage is repaid when it reaches loan maturity, which occurs if the borrower(s) sell or transfer the title of the home, permanently moves out, pass away, or defaults on any of the loan terms.

Misconception: Reverse mortgages are expensive.
Reverse mortgage loans have mandatory closing costs and other fees that are often comparable to a traditional mortgage, and they can usually be financed into the reverse mortgage loan itself. It’s important to break down the costs and compare them to other financial solutions—reverse mortgages can often be the less expensive one.

Misconception: The heirs will not inherit the home, and will inherit debt.
When the last borrower passes away, the heirs will still inherit the home, and will receive any remaining equity in the home after the loan is repaid. They may choose to repay the reverse mortgage loan by selling the home, refinancing the loan into a traditional mortgage, or with personal savings or other funds. If the loan balance is larger than the home’s sale price, the heirs are not personally liable. Most reverse mortgages are federally-insured, so the Federal Housing Administration (FHA) covers the difference.

To learn more about how a reverse mortgage could help you, contact a qualified reverse mortgage professional.