The first two floors house their mortgage production and management staff. The penthouse houses Sun West Financial (SWF), a ‘sister’ company. It is the responsibility of the dedicated professionals of SWF to support the sales staff, underwriters, processors, and their assistants on the mortgage origination side of the operation.
SWF is also responsible for supporting certain mortgages that originate from the talented production staff headed up by Mr. Raul Padilla, Executive Vice President/Head of Retail Operations in Puerto Rico.
One of the newest mortgages to be introduced into the Puerto Rican real estate market is the Reverse Mortgage. In the following interview, Mr. Raul Padilla breaks down reverse mortgages and outlines the pros and cons. In the process, he also dispels any unfounded myths about reverse mortgages.
Interviewer: Can you explain just what a reverse mortgage is?
Mr. Raul Padilla: Reverse mortgages are considered a potent and useful source of funding for those who want to increase their income as a means to live out their retirement years comfortably. Reverse mortgages provide retired homeowners a way to technically borrow (without increasing monthly payments) against their home’s available equity. Homeowners do not need to forfeit the ownership of their primary residence with a reverse mortgage.
Interviewer: Who would be eligible for a reverse mortgage?
Mr. Raul Padilla: Eligible borrowers must be 62 years old, or older. The amount of the reverse mortgage is contingent upon several factors as well the use of standard actuarial tables. The most significant factors include the applicant’s age, the value of their home and current interest rates. Logic dictates that applicants will find their eligibility increases as they age, or if their home’s value appreciates. Also, current interest rates may impact the monthly income received by the retired homeowner.
Interviewer: How long does a reverse mortgage continue?
Mr. Raul Padilla: It is impossible to anticipate just how long a lender will be paying on a reverse mortgage. That is simply an unknown important factor (and a lender risk factor) that is best handled by applying the information found in actuarial tables – a spreadsheet denoting probabilities related to death mortality rates.
A reverse mortgage ends when the borrower dies, permanently moves from the property, or sells the property. In any of these situations, the borrower must repay the outstanding balance to the mortgage lender.
Interviewer: You have mentioned some significant benefits of a reverse mortgage. What are some causes of concern?
Mr. Raul Padilla: It is always prudent to weight the pros and cons of any mortgage product, including a reverse mortgage. The previously noted benefits truly fit the needs of many in ways that have no alternative solutions. But a reverse mortgage must be evaluated carefully in its entirety.
The first consideration is to review the costs associated with reverse mortgages. While all mortgages require the payment of closing fees, reverse mortgage fees rise above the average cost of traditional mortgage financing. Among other expenses, typical fees include loan origination, mortgage insurance, title insurance, and the appraisal fee. Loan officers should highlight this important facet of the applicant’s decision-making process. Note though, that the closing costs are not out-of-pocket expenses. They are rolled into the reverse mortgage granted.
Remember, as I noted above, the reverse mortgage is due and payable should the property be sold for any reason. The sale of the subject home may happen unexpectedly if the homeowner needs to enter a full-time care facility. An applicant should carefully consider the probability of this occurring.
Finally, I should mention that a reverse mortgage impacts how an applicant’s estate is handled. As a lender, like Sun West Mortgage, continues to pay the homeowner, it reduces the property’s equity. This reduction will cause heirs to receive less upon the applicant’s death.
Interviewer: Can you clarify some of the myths surrounding reverse mortgages?
Mr. Raul Padilla: Myths and misconceptions run amuck in the mortgage industry, especially concerning reverse mortgages. Many people misunderstand mortgages – so Sun West Mortgage is proactively trying to clarify any myths and educate the public. We are making an effort to neutralize misconceptions, which often are the reason homeowners avoid considering a reverse mortgage. Conversely, seniors eligible for a reverse mortgage may act impulsively and not take the time to understand the complex concepts that define a reverse mortgage.
In my experience, most potential reverse mortgage applicants believe that a lender takes title to the property. This belief is, in fact, simply untrue. A reverse mortgage, like every other mortgage, is a lien against the property.
Others believe that if the reverse mortgage balance exceeds the property value, one’s heirs will be responsible for repaying the lender this overage amount. In reality, a reverse mortgage is a ‘non-recourse’ loan. The maximum amount owed to the lender is equal to the appraised value of the home at loan maturity.
Finally, many eligible homeowners believe that the protocol of a reverse mortgage allows the lender to evict the homeowner from their home. This assumption is also incorrect. A reverse mortgage recipient chooses when they leave their home. The reverse mortgage is not due until the subject property is no longer the applicant’s primary residence.
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