California Reverse Mortgages for Seniors

As a veteran reverse mortgage specialist, I am surprised by the number of seniors who still think that getting a reverse mortgage means they are giving up control over their home. This concern was "almost" valid when it came to the reverse mortgages of the 1970's and 80's, but, fortunately, times have changed.

Indeed, for some, the words "reverse mortgage" conjure up images of a banker, twisting his long mustache and cackling as he leaves with the deed to a helpless elderly woman's home. Where will she live? What will she live on? That evil banker and his reverse mortgage just stole the home away from yet another innocent soul!

Fortunately, with today's reverse mortgage, nothing could be further from the truth. Reverse mortgages in the U.S. are regulated by the Department of Housing and Urban Development (HUD). HUD completed essential rule changes in 2002 under which reverse mortgages are issued. While there were some early programs prior to HUD's actions that, in effect, required the home owner to sign over their home to the bank, those programs are gone.

In fact, most reverse mortgages issued today are the HUD/FHA Home Equity Conversion Mortgage. With HUD as the sponsor and FHA (Federal Housing Authority) insuring the borrowers' money, the reverse mortgage is another assistance program for people 62 and over such as Social Security and Medicare. The difference is that you already paid for the latter two with your payroll taxes during your working years. The reverse mortgage is supported with your home equity and only goes to you, not to support anyone else. Like all government home mortgage programs, reverse mortgages are arranged through specially-licensed mortgage lenders such as FutureSafe Financial.

The reverse mortgage is a simple and fair transaction: the lender pays the homeowner (the 'reverse' part) in exchange for a lien on the home (the 'mortgage' part). The mortgage lien is the only claim that the lender has to the home. This type of lien gives the lender the right to be paid back when the homeowner dies or permanently moves out. At that point, the bank is entitled only the money that it lent to the homeowner.

What then, is the senior giving up with a reverse mortgage? As with many things, it depends. If they have heirs that are really looking forward to receiving their parents' home as in inheritance, then the tradeoff is that the senior will be leaving them a home with a mortgage on it. If they do not have any heirs, or if their heirs are not too concerned about getting every dime that they can, then a reverse mortgage means the senior is giving up very little.

How much are they giving up? The size of the mortgage is in the future depends on how quickly the senior uses the funds available from the reverse mortgage. We will run the scenarios for your situation to project how much equity will remain in the home in the future. Oftentimes, people are surprised how much money will remain. In fact, assuming a modest home value appreciation rate, sometimes the senior's home equity continues to increase in the future even with a reverse mortgage.

Reverse mortgages do not take away control of the seniors home. They are a financial tool that has benefits and costs that should be evaluated on a case-by-case basis.