Reverse Mortgage Loan: The Surprise I Can't Tell You About in Advance

When I sit down with homeowners, lead a seminar, or present a continuing education course to financial advisors, I get a lot of great questions.

But first, I have to break through some standard headwinds of what the product used to be to share how it became the consumer-protective version it is today.

"No, the bank will not take your house. As long as the borrower fulfills their obligations of paying their property taxes, home insurance, and maintains the home*."

*Note: These same obligations come with every loan!

"No, the borrowers or their heirs will never owe more on the loan than the appraised value of the property." The reverse mortgage is a non-recourse loan backed by the Federal Housing Administration (FHA). Reverse mortgage loans for seniors (age 62+) are strictly non-recourse. The borrower (or their estate) will never owe more than the home is worth, and no other personal assets are at risk.

"No, the reverse mortgage loan is not just a last resort. It has flexibility and options for any eligible borrower. The more it is used as a 'last resort,' the less long-term flexibility it offers."

Once we get a few of these major sticking points out of the way, the conversation shifts. Significantly. It shifts from rumors, often unfounded, to curiosity. To wonder, about how it might work for their situation, for a friend, or for a client.

The questions elevate and deepen. Tax implications. Estate planning. Coordination of retirement accounts.

It's at this point where I need to share something important: there will be a surprise down the road, but I can't tell you what it is.

The energy in the room changes.

"I knew it was too good to be true."

But, like initial views of the reverse mortgage loan, this is also an inaccurate assumption.

I typically say something like this:

"You're going to be surprised with how good this decision feels."

"You're going to be surprised with how much flexibility you create."

"You're going to be surprised with how your line of credit grows and the freedom it provides."

"So, yes, there are going to be surprises down the road with your reverse mortgage loan."

Let me back up a bit and share more on one of those wonderful surprises.

"You're going to be surprised with how your line of credit grows and the freedom it provides."

You read that correctly. When you choose to take your equity with a line of credit, there is a growth component to that line of credit.

Whatever the note rate is on the loan, you GET the same growth rate on the dollars in your line of credit.

For example, if the note rate on the loan is 6.5%, you get a 6.5% interest rate on your line of credit. Income-tax-free growth.

That means if you have a reverse mortgage with a loan balance less than your line of credit, the interest rate becomes your advantage.

And while a borrower is under absolutely no obligation to ever make a payment on their reverse mortgage loan, the option to do so always exists.

So, if a borrower CHOOSES to make a payment or payments, they not only reduce their loan balance but those same dollars go directly to their line of credit. A line of credit that is accessible at any time for any reason. No questions asked.

I looked up the definition of 'win-win,' and here is what I found:

Like good surprises? Curious and open to learning something new? Let's connect. I would love the opportunity to be of service by sharing what the reverse mortgage used to be, when and how it changed, and show you how it works today.

That doesn't mean it's right for you. And even if you decide it is, I have a rule I am unwilling to break: "You're not allowed to buy anything in our first conversation."

The only thing you have to lose is a misunderstanding. What can you gain? Well, that's a surprise.