How Do Reverse Mortgages Help Homeowners?

4 Replies

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

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.

@Chris Mason , thanks for your reply! I've still got a few questions if you don't mind...

If the home goes to a reverse mortgage company, is it too late to make an offer on the property? If not, who would I make the offer to? 

Secondly, when the legal owner dies, who then takes title?

Thirdly, if the mortgage company is paying the owner for living in the home, how does the lender get their money back? Would a lender simply take the asset back as their own and sell it to balance out or, are the heirs then responsible for the remaining balance?

Lastly, Is there a way to either stop the reverse mortgage process?

All the best, 


Elijah Joseph

1. No, as long as there's still equity, you can offer on it.

2. That's a bit convoluted. If there's still equity, the heirs sell. If not, it's a gov't insured mortgage for a reason.

3. It's a government insured mortgage. And they are collecting (via adding to the balance) mortgage insurance payments for a reason.

4. Borrower doesn't have to sign on the dotted line. After closing, borrower can write a large check to pay the reverse mortgage off, or refinance using a "forward" mortgage (with cosigners, if needed).

So would it be right to say to an heir, "I understand that the house has a reverse mortgage on it, however I'd still like to make an offer on the property if you're interested", and go from there, OR, would you try to see their education level on how reverse mortgages work when trying to get the house under contract? From what I've seen on Youtube and other discussions I've had, its beneficial for the heir to either pay the mortgage themselves OR sell for equity. Right?