(Mar 26, 2023)
However, mum took her son to the room and switched on the lights to prove that his father snored. But the young boy still believed there was a bear in his room.
According to psychologists, fear and greed are the two primary motivators for any human. In the case of reverse mortgages, most seniors shy away from signing up due to fear.
The truth is, most fears are ill-informed and have no basis. Here, we examine four main concerns that hinder the uptake of reverse mortgages.
Reverse Mortgages: Why Do People Fear?
Potential beneficiaries have different reservations about reverse mortgages. Some believe the bank will expel them when they fail to pay or evict their spouses when they pass on. Others also see reverse mortgages as huge debt traps likely to haunt their heirs.
Here are the four main fears that hinder the uptake of reverse mortgages:
1. It Is Too Good To Be True
A reverse mortgage allows you to access easy cash using your home equity. It has lower interest rates compared to a forward mortgage. Besides, you have flexible payment options that allow deciding how and when to pay back as long as you occupy the house.
Moreover, the FHA insurance protects you against outliving your home equity. All these benefits are too good to be true for some seniors.
2. This Is Not My Last Home
People fear that they may have to shift residence at any time. Indeed, nobody knows if they’ll live in their current homes for their lifetime. At some point, your health may decline, prompting you to move to a smaller condo. A job may still pop in past retirement in a different state.
Regardless of the cause, the FHA protects you and your heirs. All you do is sell the property and get tax-free profit. If equity is insufficient, you won’t pay the deficit. You walk out peacefully and let FHA insurance clear your mortgage.
Alternatively, you may opt for a Home Equity Conversion Mortgage Line of Credit (HECM LOC). This option allows conversion of equity into cash with the possibility of reverting to equity at your convenience.
It comes with a guaranteed annual growth rate on your equity, based on the mortgage interest rate. Whether your home value declines or loan interest rates hit a rocket-sky level, your equity continues growing.
To crown it all, you can refinance your mortgage when the home value rises. Refinancing costs more, but is cheaper when working with a higher home value. So, if you think you’ll move out of the house after 3-5 years, then HECM is your best alternative.
3. Interest Rates Adjustment
People fear adjustable interest rates because they will pay more in the long run. However, you may still opt for a fixed rate if you don’t want to pay more. The downside of a fixed rate is that you won’t qualify for a bigger initial payout.
For most clients who wish to get a bigger portion of the line of credit, an adjustable rate is the ideal option. Unlike a forward mortgage where adjustable rates may shoot up suddenly, equity lines of credit are different. Interest rates rarely exceed 10%.
Moreover, when interest rates increase, you may lose some equity because it is your security. Despite this, your line of credit and monthly paycheck also increase, putting extra money in your pocket.
If rates exceed beyond your home value, you have nothing to worry about. The FHA mortgage insurance is there to pay off the extra interest on your behalf.
4. Fear of the Unknown
Most seniors fear taking a reverse mortgage, believing that something bad will happen to them someday. It is not about expensive costs, high compound interest, or losing the property.
Like the bear in the closet, they fear unknown occurrences which may pop up in the future. Primarily, the fear comes from negative stories about how bad reverse mortgages are and thus worth avoiding.
On the contrary, a combination of good financial advice and a reverse mortgage may turn out as the best financial tool ever. The fear of using it, without a solid reason, is a big financial mistake in retirement.
The Bear in the Closet
Four main fears hinder seniors from taking reverse loans. First, the benefits seem too good to be true. Others think they may move out of the house sooner than they expect. The fluctuating interest rate is also a primary concern, while others perceive something negative will happen.
However, like the bear in the closet, it is possible to fear what doesn’t exist. If you struggle with fear, take a step of confidence and sign up for your loan today.
(Mar 26, 2023)
