How Do Reverse Mortgages Work?

Do you know how reverse mortgages benefit senior citizens? If not, let Ron Smith of Opes Advisors explain.

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What are reverse mortgages? How do they work? To help explain, I have with me Ron Smith, a reverse mortgage expert from Opes Advisors.

I understand that reverse mortgages once had a bad reputation, but that is no longer the case.

It is true that there was a time when, for reverse mortgages, the bank went on title with you, and that is no longer happening. Now, they are simply a loan or lien against your property like a regular mortgage. That way, when you pass away or move out of the house, your heirs get the property just like normal; the bank doesn’t take it over.

There was also once a concern about, say, if one of the borrowers was less than 62 (the minimum age to be eligible for a reverse mortgage) and the older spouse who had the mortgage passed away, what would happen to the spouse? That issue has also been taken care of. Now the spouse can just stay in that house.

Can you clarify what a reverse mortgage actually is?

Typically they are used when somebody has a fixed income, like Social Security or a pension, and they just do not have enough money to make it through the month. We do a loan on the house, at which point, they can either get an income stream, a lump sum of cash, or a line of credit; then they can just take what they need when they need it. As time goes by, they just use those funds to help them pay their bills and live their life. Medical reasons are the one of the primary motivators for reverse mortgages. There is no payment required, although you are welcome to make a payment if you would like. Once you move out of the house, it goes to your estate, allowing your heirs to either pay it off or sell it.

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Reverse mortgages are used when somebody has a fixed income, like Social Security or a pension, and they just don’t have enough money to make it through the month.

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You said that you don’t have to pay it back if you wish—obviously, it will come due at some point, so how does that work?

Once you no longer live in your house, your heirs can sell the house to pay off the loan, or pay it off themselves without selling it. Whatever money is left goes to the estate.

It sounds like a good plan to help senior citizens stay in their homes for a longer time if they lack a good pension plan.

It absolutely is. For example, we are doing one for a lady whose husband passed away. She receives $1,000 a month from Social Security, but her house payment is $796 a month. Through the reverse mortgage, she won’t be getting a lot of money, but we’re going to make that payment go away.

How can people get in touch with you to learn more about reverse mortgages?

They can call me directly at (541) 284-8036. I would be happy to answer any questions for them.

I would like to thank Ron for coming and speaking with me. If you have any real estate questions for me, please feel free to reach out to me. I hope to speak with you soon!