Misconception of a Reverse Mortgage… Oh It’s Out There!

Have you ever wondered, and you probably have an idea, what happens when you stop making payments on your forward loans (i.e. FHA, Conventional, etc) ? Well depending on what state you live in after you’ve missed 4-6 consecutive mortgage payments the bank will then proceed with a foreclosure and as soon as it gets through the court system they will immediately foreclose on your home.  Done Deal.  Nothing more to it.  Unfortunate as this is, I have always found it extremely odd that almost all people can grasp this concept of paying on a forward mortgage knowing full well the risk of at some point they MIGHT lose all the interest and principle they had been paying on up to the point of a foreclosure.  Now God forbid that happen to any of us.  But this is a harsh reality sometimes and there is nothing worse than losing one’s home.

However, when most people are presented with the idea of a reverse mortgage, they cringe and squirm and start to say that these are very risky loans and that they can be dangerous.  I recently had this very conversation with someone at church this past Sunday.  I handed him one of my business cards and told him if he knew of anyone to please pass it on.  He answered in the same fashion that I previously described about how they were risky.  I then pointed out that a Reverse Mortgage is highly regulated by HUD and insured by the government. It is helping thousands of seniors survive financially by eliminating payments and helping with everyday costs.   He then stated that he, the tax payer, would be footing the bill on Reverse Mortgages that default and he wasn’t too impressed with that.  But when I asked him what kind of loan he and his wife had used to purchase their first new home about 5 years ago he replied, “Well we used an FHA loan.”  I asked him if he had to pay MIP (Mortgage Insurance Premium).  He replied, “Yes, that is correct.”  I then asked him why he thought he had to pay that monthly mortgage insurance and then immediately gave my answer to my own question.  I replied, “It’s because if you and your wife ever default on your FHA loan then it is federally insured by the government and regulated by HUD.  He started to look at me like he was picking up where I was going with all this.  And finally, I asked him the question, “If you default on your loan and it is federally insured by the government, guess who gets stuck with the bill?  He started to grin…  I replied, “You guessed it!  I do.  The Tax payer”.

Now this was by no means meant to belittle him in any way.  In fact, he is a very good friend that I have known for many years and frankly it’s not really his job to know because loans are not his profession.  But I just wanted to show that many people have a negative outlook on Reverse Mortgages and they don’t really know why. And unfortunately, they have no reservations more or less on spreading the misnomer of negativity about such loans.  I do not believe it is out of ill intent when any one person does this.  But there is a true misconception out there and it is my job to educate and instruct or advise on which mortgage will be best suited for any borrower I come in contact with.  Gasoline is a wonderful resource for helping you run your lawnmower for cutting your grass or fuel your car to get you anywhere you need to go.  However, gasoline can be very dangerous when mixed with fire.  I think you catch my drift.  Loans can be very useful financially if used properly.  They can also be very dangerous.  So keep this in mind when you hear about a Reverse mortgage OR for that matter your traditional forward paying mortgage.

Green House Mortgage is a full service home loan origination entity in Tampa, FL and servicing the state throughout.  If you have any questions or concerns with the article or simply need mortgage advice please call 813-732-3155 or email us at info@ghmortgage.com.  We are dedicated to giving you the best mortgage consultation available.  Green House Mortgage – It Pays to Go Green!