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The Pros And Cons Of Reverse Mortgages - YouTube
Channel: The Rate Update with Dan Frio
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in this video we're going to go over the
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basics of a reverse mortgage and the
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reason why i'm doing the video is i've
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done hundreds if not thousands of
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reverse mortgages throughout the years
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and every situation is different
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but the questions that come up on
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everyone is basically the same so what i
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wanted to talk today is basically the
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basics of what a reverse mortgage is and
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maybe what it isn't so the first thing i
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want to do is just go over well it's
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just to explain to you who i am my name
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is dan freya i do the raid update every
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day advising people on where mortgage
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rates are and basically the goal of the
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channel is to educate and inform you
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guys is everything real estate
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especially when it comes to the
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financing piece of the puzzle
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so that being said we're getting more
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and more and more calls in regards to
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reverse mortgages so the first thing i
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thought we would go over is
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when you look at a reverse mortgage when
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you google it
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what do you normally see so this is the
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backdrop and i just google it up here
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said reverse mortgage and this was what
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pops up locally near me but you can see
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me down at the bottom right here the
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rate update powered by dan frio i'm in
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the top one of the market which is
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awesome but if you go through here
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you're going to read these questions
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here do you have to pay back a reverse
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mortgage
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um how much money do i get from a
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reverse mortgage
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what is the reverse mortgage in its
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simplest items or what what is a reverse
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mortgage in its simplest terms is
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basically what it's asking and then
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what's the um rules
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of reverse mortgage so what i thought i
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would use is because a lot of people you
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know they say that well you're only
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grabbing the data that helps your your
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you know argument i'll put it that way
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well this is from the ftc
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all right so let's use their background
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and their website's information to
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really explain what a reverse mortgage
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is
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and
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the one main question that i want to
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explain to everybody is what a reverse
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mortgage isn't
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so let's first start out by who
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qualifies and what would prompt you to
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look into a reverse mortgage but we go
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right here
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if you're 62 or older and want money to
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pay off your mortgage supplement your
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income or pay for health care expenses
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you may consider adverse mortgage it
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allows you to convert part of the equity
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in your home into cash
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without selling your home or paying
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additional monthly bills all right so
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let's go down through and see what it
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explains here
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how does a reverse mortgage work well
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let's start here when you get a regular
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mortgage you pay the lender every month
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to buy your house over time
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in a reverse mortgage you get a loan in
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which the lender pays you
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the reverse mortgage takes part of the
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equity in your home and converts it into
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payments to you
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okay
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the one thing i want to explain to
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everybody and i even have attorneys
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questioning this sometimes i used to
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have a radio show in chicago and i had
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an attorney on there and he's like well
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why would my client want to do a reverse
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mortgage when they have to deed the
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house to the bank
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i got some great news for you
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if you get a reverse mortgage of any
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kind you get a loan which you borrow
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against the equity in your home
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you keep the title to your home
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the money you get usually is not taxable
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and it generally won't affect your
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social security or medicare benefits
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when the last surviving borrower dies
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sells the house or no longer lives in
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the house is a principal residency the
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loan must be repaid okay so let's break
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all this down how this is working so far
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so what is a reverse mortgage well
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you're 62 years or older
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and then when we go down a little
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further i'm going to give i'm going to
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show you the biggest pieces of this
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puzzle and how much money you're going
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to end up getting but in most cases
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people are applying for reverse
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mortgages because they're they're
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deficient of money or
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cash flow we'll put it that way so you
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have a house that you've been in for
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forever
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and god bless you you've spent some a
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long time there and now you have a ton
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of equity in the house
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but you just have no means of paying
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your bills anymore and then it gets to
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be really difficult trying to apply for
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a loan and you can't live off of credit
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cards so what's the alternative well it
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was the creation of a reverse mortgage
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basically for those that
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have their house paid off or almost paid
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off okay what you do is you put up the
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house's collateral just like any
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mortgage
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you continue to be the title owner or
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vested in title what that means is you
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own the property you don't have to give
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the property over to the bank okay that
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that came apart let me explain that
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piece of the puzzle where a lot of
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people think that you have to give the
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house back to the bank okay so here's
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what can happen all right in a reverse
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mortgage
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let's say for example you're 62 years
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old and you got a reverse mortgage and
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it was based on the value of the house
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at that time and you got the loan well
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god bless you you had great genes and
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you lived to 110 right well at the end
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of this
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you owed five hundred thousand 000 on
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your reverse mortgage but the house is
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only worth 200. well now what happens
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well you have a couple options your
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heirs
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can get the property and put it up for
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sale
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and sell it well if you sell it you're
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going to sell it for 200 and remember we
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owe 500 000. well you're going to be
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short
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well in a reverse mortgage you can't be
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short so what happens in this case
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you can take that and pay the deficiency
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balance back but you don't have to
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you're not obligated to
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so in that situation you would most
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likely hand the keys over to the bank
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and say well we had 40 60
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50 60 years living in the house we
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enjoyed it never had to make a mortgage
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payment the house is yours
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that's the only time that it would
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happen if you're in that loan so long
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that you were
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the interest that you owe on the that
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loan or the amount of money you owe on
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the loan exceeds the value of the
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property at that time you have the
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ability to hand the
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a house over to the bank with no
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repercussions you don't owe anything
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else there's no recourse on the loan
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so that's the reasoning behind you here
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a lot of times as well you have to give
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the house over to the bank well the bank
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doesn't want your house okay they
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basically want you to stay there as long
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as you're still alive and you deem that
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property as your primary home you can
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stay there without making mortgage
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payments okay so let's look at it this
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way you have let's say your house is
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worth four or five hundred thousand and
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you own it free and clear and you're
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just like you know i can't afford my
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monthly expenses with gas prices the way
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they are medicines the way it is
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inflation
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uh food and everything else you just
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don't have enough money each month to
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survive uh it's probably not a prudent
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idea to charge it on credit cards
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because most credit card rates are 18 20
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25
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and again where are you going to get
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where are you going to get the money to
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pay that loan all right so which was the
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creation of the reverse mortgage okay so
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let's get into the nitty-gritty of what
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a reverse mortgage is at this point
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so let's continue down uh the page of
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the cfpb and see what else they have to
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say about reverse mortgages all right
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you have to pay
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other costs related to your home
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in a reverse mortgage you keep the title
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to your home that means you're
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responsible for the taxes
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insurance
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fuel maintenance and other expenses if
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you don't pay the property taxes keep
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the homeowners current and maintain the
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house the lender might require that you
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pay back the loan so basically you have
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to keep your your utilities up your
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taxes paid current your homeowner's
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insurance current and the house in
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livable condition you do not have to
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make a mortgage payment i'm going to
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explain to you though there are options
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where you can make payments to this if
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you want
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well the most customary or or standard
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program or reverse mortgage product in
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the country right now is called a heckum
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they're federally insured reverse
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mortgages and are backed by the us
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department of housing and urban
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development also known as hud
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and it can be used for any purposes
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how much can you borrow okay basically
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it breaks it down to this what is your
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age
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what type of reverse mortgage you're
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selecting and we're not going to go over
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all those options i just want to explain
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to you the basics of what a reverse
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mortgage is and if you're intrigued and
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want to learn more please give us a call
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the type of reverse mortgage you select
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the appraisal of the home or an interest
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rate the financial assessments of your
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willingness and ability to pay the taxes
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and the homeowners on insurance on the
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property in general the older you are
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the more equity you have in your home
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and the less you owe on it it means more
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money to you
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before applying for a heckum you must
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meet the meet with a counselor for an
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independent government-approved
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counseling session
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some lenders offer proprietary reverse
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mortgages also require the counseling
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and the counselor is required to explain
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the loan costs and financial
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implications
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the counselor also must explain the
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possible alternatives to the hecam like
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government or nonprofit programs or a
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single purpose for uh or proprietary
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reverse mortgage sorry that was a little
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tongue twister there let's go down
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through here and see if there's anything
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else that we should be covering on this
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page if not
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i will go over the specifics just to
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break it down like a scenario
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so for example let's say like i was
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stating before you're running short each
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month so you have multiple options that
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you can do you can take a
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lump sum distribution
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you can take monthly payments so you put
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up your house's collateral and let's say
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you're getting 2 000 a month in social
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security and pension and it just doesn't
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work and you're about a thousand or
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fifteen hundred short each month you can
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set up this program to send you a
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monthly distribution of fifteen hundred
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or you can just set it up that it's a
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line of credit to use when you need it
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okay the best time to apply for this or
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a good time to apply for this is in many
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cases
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one let's just say you're
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house rich but money poor okay meaning
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you have your house virtually paid off
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and you got a half million dollars
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sitting there but you have bills coming
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in that you can't pay and you're like
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okay i'm cash or house rich but i don't
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have enough money to pay uh my bills so
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instead of selling the house you can do
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it this way so let me explain how this
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works and let me explain the payment
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options that you have
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when you're
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making payments or
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proposed payments okay so how do you pay
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this back is basically what i'm saying
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when you get the money in any
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denomination you want the lump sum the
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monthly distribution or whatever well
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now what can you do
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how does the balance grow what's
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happening behind all this okay so think
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of it this way you have a free and clear
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house but i need
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a hundred thousand dollars to pay off
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all my bills and then i'm set okay so i
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initially take a hundred thousand
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dollars and the rate is on out there
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whatever so now you close on the loan
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you're good and now what happens well
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you start getting statements
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so those statements are given to give
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you options to pay
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if you want to pay so you don't have to
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make a mortgage payment that's the whole
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gist of a reverse mortgage what happens
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if you don't make a mortgage payment
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well the interest that accrues on the
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money that you were lent
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just compiles okay so you might like you
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might not care or you might like i don't
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like that well you can then maybe make
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an interest only payment if you want so
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let's say you took out a lump sum and
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each month that that lump sum the amount
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of interest accrued on that lump sum is
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500
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well you can send in 500 a month
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and it'll stay at the current balance
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that you have
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but you'll continue to pay the interest
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so in this case we borrowed a hundred
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thousand we're paying the interest every
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month because that's all we can afford
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right now but we continue to owe a
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hundred thousand dollars okay so that's
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how that would work
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or you you can make payments of the
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whole thing so let's say for example
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um you just don't qualify for a loan you
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have enough cash coming in but it's just
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cash it's unrecorded it's untaxed it's
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it's all these variations of things
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um but you can't get a mortgage well you
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can actually use a reverse mortgage to
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get a mortgage okay again that's kind of
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what it's for
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but what i'm getting at is you can make
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payments so let's say for example like i
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don't qualify because of my income on
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how you know i get a lot of cash and
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everything else so i'm like i just have
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no way of getting money well in this
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case i can get money okay and because
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i'm getting cash in i can actually make
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payments to turn that into just a normal
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mortgage
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because basically what this is a reverse
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mortgage is technically an fha mortgage
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with i like to explain it this way it's
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an optional payment plan you don't have
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to make any payments you can make
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interest only you can make a full
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payment you can send in a dollar you can
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send it as much as you want that's the
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benefit of all
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so hopefully with this little
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information that i give you
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um we didn't cover every program how the
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rates work how the costs work and
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everything else i just want you to
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understand the basics behind a reverse
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mortgage when it's used when it's most
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commonly used and who qualifies so if
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you have any other questions that i
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might be able to answer for you we would
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love to be able to help you best way to
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reach us is right here you go to the
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raidupdate.com
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800 number is 844 775
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you can schedule an appointment with us
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right up over in this section here
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or if you want to even chat you don't
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really want to call or do emails we have
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a chat bot right down in the bottom here
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that that'll pop up and you can ask any
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questions that you want there but if you
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want to reach out to me my name is dan
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frio all my information is down below
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love to be able to talk to you explain
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all your options to you if you're
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looking in regards to a reverse mortgage
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and just to make sure you're educated
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when it comes to everything real estate
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especially the financing portion so
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thanks so much for watching god bless
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have a great day look forward to hearing
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from you bye
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