HOME EQUITY INVESTMENT AND REVERSE MORTGAGE — A WORD PAIR THAT IS NOT SYNONYMOUS
“Does it really matter if you say “jam” or “jelly”, “college” or “university”, “disinterested” or “uninterested”? Jennifer A. Freeman, writing in wordsmarts.com, thinks it does. “Precise language is the mark of a good writer,” she says. For example, universities offer both undergraduate and graduate programs, while colleges usually offer only associate and undergrad degrees.
Precise language is perhaps even more important when it comes to financial products and services. In fact, it’s the responsibility of any advisor to provide clear explanations and detailed documentation, demystifying financial concepts and products, Matthew Jarvis explains in Adviser Perspectives.
Two terms important to differentiate are reverse mortgages and home equity investments. While both are tools offering homeowners an opportunity to access their own housing wealth, the differences between the two can be highly significant for senior homeowners desiring to “age in place”, hoping to spend their remaining years living at home.
Motivations for accessing home equity are varied, of course, with borrowers aiming to satisfy their own cash flow needs, provide help to family members, fund life and health insurance premiums, and achieve charitable giving goals, all without disturbing their portfolio asset allocation or interrupting any system set up for periodic portfolio withdrawals. For all these purposes, the biggest difference between home equity investments (HEIs), and HECM reverse mortgages is what matters – Reverse mortgages are designed for long-term, even life-long stays, with no fixed repayment date so long as borrowers are able to keep occupying the home. In contrast, HEIs have a fixed term. Significantly, there are no “guardrails” in place for the protection of the borrower, ie. State or Federal Regulatory Safeguards.
While there are a number of other significant differences between HEIs and reverse mortgages, the other most significant one has to do with risk. Although interest and fees accrue on a reverse mortgage, by definition it is a non-recourse loan, meaning that the homeowner or his/her heirs cannot owe more than the sale value of the home itself. In contrast, an HEI is not a loan, but a “partnership agreement”, in which the homeowner will owe a percentage of the home’s appreciation from the time the agreement was formed until the end of the period, which might end much sooner than the homeowner’s life
HEIs (Home Equity Investments) and HECMs (Home Equity Conversion Reverse Mortgages) are a word pair that is not synonymous.
https://mutualreverse.com/david-garrison
David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual
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