How Do Reverse Mortgages Help Homeowners?

[Elijah Joseph]

I was cold calling some leads today and I came across something I've never heard of before: Reverse Mortgage. I did a little bit of research on it and found a few terms and definitions that I'll use to understand the theory behind them. Practically however, I don't understand them. Essentially, you get a mortgage in reverse because you can't afford to pay for your mortgage and then the lender pays you? How does this benefit in any homeowner? Can anybody explain further and give insight on how to help a seller who has a vacant home with a mortgage in reverse?! 

Thanks in advance!

Elijah Joseph

[Chris Mason]

Originally posted by @Elijah Joseph:

I was cold calling some leads today and I came across something I've never heard of before: Reverse Mortgage. I did a little bit of research on it and found a few terms and definitions that I'll use to understand the theory behind them. Practically however, I don't understand them. Essentially, you get a mortgage in reverse because you can't afford to pay for your mortgage and then the lender pays you? How does this benefit in any homeowner? Can anybody explain further and give insight on how to help a seller who has a vacant home with a mortgage in reverse?! 

Thanks in advance!

Elijah Joseph

 It's a last resort to keep an elderly person in their home until they pass away. I have a colleague that does them, I personally don't. 

Every payment grandma gets, as well as fees and PMI, is tacked onto the mortgage balance. These are negam mortgages. Meaning that for grandma to get that $2k check in the mail, the mortgage balance is going up by MORE than $2k.

For that reason, in almost all cases, the heirs will be financially better off supporting grandma than they would be if grandma takes out a reverse mortgage. Writing grandma a $2k check is better than one's inheritance going down by >$2k AND taking care of your elders is the right thing to do anyways. 

Fun Fact: Some of them are exempt from the loan originator compensation rule that came out a few years ago, meaning the LO can lawfully get paid more for handing grandma/grandpa a higher interest rate on a one-off basis, just like the F&I guy at a car dealership. No idea why CFPB carved out that exception to what is widely viewed as a "good" consumer protection rule.