By Chris Clow | Care of Reverse Mortgage Daily
Consumers need to fully understand all of the associated costs, terms and conditions prior to applying for a reverse mortgage transaction, and that the ultimate decision made by an older homeowner at or over the age of 62 should be in consultation with a prospective borrower’s family or other trusted advisors.
This is the perspective shared by Chris Thetford, VP of communications and marketing with the Better Business Bureau (BBB) of St. Louis, Missouri in a story broadcast by a local FOX TV
“[A prospective applicant] should look at [the key requirements of a reverse mortgage] and see if they can qualify,” he says. “But another good tip is to have a big conversation with your whole family so that they understand the process that you’re thinking about taking in by having a reverse mortgage.
That kind of transaction can have an impact on the borrowers’ family specifically in terms of potential inheritance in the future, Thetford says. Having children or other family members who are involved with the eventual estate of the borrower should maintain knowledge of the loan’s key features as well in order to navigate what will happen at the end of a borrower’s life, he adds.
“Everybody needs to understand that you’re withdrawing the equity in the home,” Thetford says. “While you might be told that your children can still inherit your house, there’s a hitch to that.”
The “hitch” he describes is that heirs or other surviving family members are going to have to pay back the amount of equity that has been taken out of the house along with any interest charges that may have accumulated during the time that the borrower was alive and living in the home. However, there may also be alternatives to a reverse mortgage product that could end up suiting the needs of the affected senior, Thetford explains.
“So the whole family needs to know [about these elements], and there might be other vehicles available for people looking to get money out of their house,” he says. “They might want to think about a home equity loan instead of a reverse mortgage. It just depends upon the circumstances, and people need to think about where they are, where they want to be and then go forward [from there].”
Prospective borrowers should also be aware of the upfront costs and fees that accompany a reverse mortgage, echoing a common critique that many have previously expressed about the reverse mortgage product category.
“If you do move forward with a reverse mortgage, you want to understand what all of those fees are going to be, what you’re going to have to pay [to get a reverse mortgage loan], but after you’ve made a decision about whether it’s a good fit for your family.”
Any stakeholders in a decision relating to the financial affairs of a family member would be well-served by “reading the fine print” associated with any new transaction, and that applies to a reverse mortgage as well.
“Read about things like origination fees, appraisal fees, things like that [which] you’re going to have to pay,” Thetford says. “You need to understand that’s [an associated] cost. And if you get a reverse mortgage, you’re also going to have to keep up with the insurance costs, the taxes on the property, and you’re required to maintain the property in a condition that keeps its value where it needs to be to support the reverse mortgage.”
Setting up a family Zoom conference with an Accredited Financial Counselor is a good way to get opinions and information at the same time. It is not unusual that all family members do not agree on the course of action. So ultimately it come down to the homeowner and their trusted advisor to balance all parties’ opinions and concerns and make a final decision. We at WestCal Reverse welcome the opportunity to assist and advise in a fiduciary manner. Call us today to make an appointment to set up a Zoom meeting with us you, your family and your advisors.
Marc has 36 years in financial services and 6 years in teaching.
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