Mark Violette of Maine Mortgage Solutions explains how a Home Equity Conversion Mortgage can positively impact your retirement
How did you get into this line of work?
By pure accident. I spent many years at Unum as a data consultant, which is basically figuring out how to make sense of information. I got recruited to go to another company and it didn’t work out, but I happened to run into someone I hadn’t seen in years who worked in residential lending, and I ended up going to work for that company for two years before going out on my own in 2019.
Why did you decide to specialize in reverse mortgages?
When I first got into this industry, I never thought I would do reverse mortgages—otherwise known as Home Equity Conversion Mortgages (HECMs)—because, like a lot of people, I had this perception that they were being offered by predatory lenders. But as I learned about them, I began to realize that there was added value that could extend and increase the quality of someone’s retirement in ways that they never thought possible.
Can you describe how that works?
Let’s take a couple in their early 70s with a $50,000 home equity line of credit that they’d like to pay off to help shore up their financial future. They have a money market fund of about $75,000 that they don’t want to use to pay off the equity line. They have a home worth $350,000. If they take a HECM for half that amount ($175,000) and use $50,000 of it to pay off the equity line, they have $125,000 left as a line of credit and the value of their home will continue to appreciate. Also—and this is important to note—the line of credit will continue to grow over time unlike a traditional home equity line of credit. It grows at the same rate that they’re being charged for any funds they’ve borrowed against the home. Another advantage is that this line of credit can never be frozen, so if we have another housing market dip like we did in 2008, it will still continue to grow. The way I look at this is that it is an additional way to create a safety net for your retirement. It preserves the value of your home, no matter what happens to the market. If this couple has longevity and they end up using all the credit but down the road their home is only worth $250,000, they only have to pay back the amount borrowed OR the value of the home at the time the house is sold, whichever is less.
Is an HECM more expensive than a traditional mortgage?
It is a more expensive mortgage on the front end. For a traditional mortgage, you typically pay mortgage insurance when you put down less than 20 percent. In this case you need to pay a two-percent upfront fee on the full value of the home based on the appraisal, which acts like an insurance premium, in addition to upfront costs. The annual mortgage insurance fee going forward is half a percent per year on whatever the outstanding balance is that you’ve borrowed.
Are there any other restrictions?
One of the homeowners needs to be at least 62 years old. If there is a balance outstanding on the home, it needs to be no more than 40 to 60 percent of the value of the home. Credit scores do not matter because there is no requirement to repay, but we do pull people’s credit in order to determine what their monthly expenses are in addition to property taxes and home insurance premiums. We have to verify that they have the income and resources to maintain their home.
What sets you apart from other mortgage lenders?
First of all, I’m an independent mortgage broker, which is like going to an independent insurance agent. There are no limits to the number of mortgage companies I can work with, and you’re dealing directly with me from start to finish. I also bring my problem-solving skills to the table—my ability to take something that is relatively complex and explain it in a simple, understandable way. I don’t see myself as a salesman, I’m more of a consultant. I also love the opportunity to work with someone’s financial planner as well. A HECM is just one more tool for your retirement portfolio toolbox.
DISCLAIMER: THIS MATERIAL IS NOT FROM HUD OR FHA AND HAS NOT BEEN APPROVED BY HUD OR A GOVERNMENT AGENCY.