How Do Reverse Mortgages Work? – Loan Love Helps Answer This Question In A New Video

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LoanLove.com sheds light on reverse mortgages as the FHA's new changes to the HECM program come into affect.

LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. A recently posted video on LoanLove.com continues to help borrowers get the best loan deals by answering the question “How do reverse mortgages work?”

The video from Loan Love says: “Mention reverse mortgages to a lot of seniors and their initial reaction is, "Eh, that's not for me." But you know what? There have been a lot of changes to reverse mortgages in recent years, and today's loans offer advantages to seniors of all income levels. How? Actually, there are two primary ways a reverse mortgage could benefit you and your overall bottom line, even if you have a comfortable income already.”

Some people may be put off by the recent changes to FHA's home equity conversion mortgage program, since the guidelines for these loans are more strict than they used to be. As an October 18th report from Mortgage News Daily says: "Despite declining FHA loan originations (from 120,917 in April 2013 to 105,995 in July), HUD issued Mortgagee Letter 2013-24 on August 15, tightening FHA borrower restrictions effective October 15 . FHA raised upfront and monthly mortgage insurance premiums (and made monthly MIP effective for the life of the loan) earlier this year, leaving FHA loans far less desirable for many buyers. The new guidelines will most affect credit challenged buyers, those least likely to qualify for loans outside the FHA program."

That being said, borrowers will want to look at the benefits and weigh them against any potential drawbacks before the make a decision. The video goes on to explain: “First, if you take your reverse mortgage as a line of credit rather than a lump sum, you can draw on it as you need it, which can help you weather the ups and downs of the stock market. See, traditionally, retirees who depend on stock market returns to maintain their standards of living have really been at the mercy of the stock market. That's a risk that really came to light in recent years when the market tanked. And then tanked again. A lot of seniors found that the values of their portfolios had plummeted, and that left a lot of retirees scrambling for ways to make ends meet. Many were forced to sell off a big share of their portfolios, and that meant that when the market recovered, the retirees had much smaller portfolios to provide an income stream. When stock prices bottomed out a few years ago, some retirees had to liquidate their entire portfolios just to stay afloat. Having a reverse mortgage line of credit would have allowed many seniors to weather that down market without having to dump their stocks.”

As the video’s hostess points out in the above quote, a reverse mortgage can greatly help those who need money to continue their way of living, but who do not want to dip into their retirement funds to do so. The second biggest benefit of reverse mortgages has to do with taxes. The video says:

“The second main advantage: Lower tax bills. Using a reverse mortgage to pay off an existing traditional mortgage can be a better choice than paying a mortgage with, say, withdrawals from a 401K. Why? Distributions from the 401K are taxable, and they can be counted as income that can bump you into a higher tax bracket.”

Obviously these types of mortgages can hold many advantages for homeowners in their retirement years. For more information on reverse mortgages, check out the video here or go to LoanLove.com to read the full reverse mortgage guide.

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Kevin Blue
Loan Love
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