Have you ever gone to a restaurant and ordered from the server and when your food came, your order was incorrect? I can tell you this has happened to me on numerous occasions. Recently I ordered a chicken salad and when the server delivered my food, I received a chicken salad sandwich instead of a salad. The sandwich looked very tasty, and I am sure it was delicious, but it was not what I ordered. What do you do when this happens? Do you blame the sandwich? What did the sandwich do wrong? Do you blame the cook who prepared the sandwich? I am sure the cook prepared the sandwich perfectly. Or do you blame the server who placed the order for a sandwich? I am sure she placed the order properly based on what she heard. Or am I to blame because I may have mis-spoken when I ordered my meal.
Clearly there was a misunderstanding somewhere between me ordering, the server taking my order, and the cook making the order. However, is the sandwich ever to be blamed in this situation? Of course not, that would be foolish to blame the sandwich when the sandwich did nothing wrong. My good friend and author, Dan Hultquist recently wrote an article titled Stop Blaming the HECM Sandwich which truly resonated with me, and I wanted to share some of it with you as it relates to reverse mortgages.
The Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage that allows homeowners age 62 and above to access a percentage of the equity in their home without any obligation of making monthly mortgage payments or ever being required to pay the mortgage back, as long as the homeowner is occupying the home, paying the property taxes, homeowner’s insurance (HOA dues if applicable) and maintains the home. This program is an amazing financial tool that provides access to trapped equity without having to pay any income taxes on the money that you take out. Does this all sound too good to be true? Well, it is true, and the program is truly that good. Are there closing costs, absolutely! Nothing in life is free and the HECM is again no exception.
What I want to make clear is that the HECM is a great program that hundreds of thousands of people have utilized and have benefited from. However, the HECM has been blamed for causing problems for some seniors in the past which has unfortunately given reverse mortgages a bad reputation, but the reality is, the problem is not reverse mortgages. The program does exactly what it is designed to do…provide you access to equity without a requirement to ever pay it back, as long as you meet the terms of the loan. So, who is to blame for previous problems? Maybe it was the loan originator for not explaining the loan terms fully. Maybe it was the loan servicer for not receiving the annual occupancy certification on time. Maybe it was the homeowner for not paying their property taxes or homeowner’s insurance. Maybe it was the heirs who misunderstood the program or were never explained the obligations. I recently received an e-mail from a client who got a HECM just about 9 months ago that I wanted to share with you, so you get a clear understanding of the power of these financial tools:
“It has been nice not to have to worry about expenses since I got my reverse mortgage. I have been able to replace a 38-year-old furnace as well as a 20-year-old hot water heater plus an air conditioner that was at least 23 years old and not worry about my finances. Besides those items, I have had periodontal surgery and ongoing treatments that have not caused undue worry about paying for all of the treatments and two surgeries plus the increases in the cost of living. The reverse mortgage has been such a positive in my life.” Cathy C.
