Is a Reverse Mortgage for You?
Reverse mortgages (also known as "home equity conversion or HECM loans") are FHA-guaranteed and approved loans. They give homeowners, who are 62+ years old, the ability to benefit from their home's equity without having to sell their home. Reverse mortgages, essentially, allow a homeowner to gracefully "age in place", without burdensome mortgage payments. Reverse mortgages can be used to PURCHASE a new home, or as a refinance of the current home, in order to eliminate mortgage payments.
Reverse mortgages require the homeowner to have substantial equity in the home, approximately 40% - 60%, although this calculation is age-dependent, and that the property is used as your primary residence. You must live in the property at least 181 days a year.
The reason for the equity requirement is that a reverse mortgage balance increases every year, since you have borrowed the money, and interest accrues on the balance of the mortgage. You aren't making payments on the outstanding balance. The lender uses certain calculations to determine that there is some remainder equity at the time the homeowner moves out of his/her home, whether into a care facility, or death. Your residence is never at risk of being taken away by the lending institution or put up for sale without your consent if you live past your loan term - even if the property value dips below the balance of the loan. However, you are still responsible for homeowners' insurance, property taxes, and HOA dues, and the upkeep on your property.
The Benefits of a Reverse Mortgage
Reverse mortgages are advantageous for retired homeowners or those who are no longer working but need a supplement their fixed income. Interest rates can be fixed or adjustable. The accessed (home equity) funds are nontaxable and do not adversely affect Social Security nor Medicare benefits. The home will never be in danger of being taken away by the lending institution or sold without your consent if you live past your loan term - even if the property value goes under the loan balance. Remember, you are still responsible for homeowners' insurance, property taxes, and HOA dues, and the upkeep on your property, otherwise the mortgage could become due and payable, as with a regular mortgage on a property.
Homeowners, who are on a limited income and find themselves needing additional funds, may find reverse mortgages ideal for their situation. Planning retirement cash-flow (how much comes in and when, and how much goes out and when) is another interesting strategy. If your home becomes a "cash flow" producer, you could plan fun vacations, make certain your monthly needs are taken care of, and even plan for in-home health care.
Other strategies may include a borrower setting up a reverse mortgage at the age of 62, and continuing to earn W-2 or self-employment income. They can pay off their current mortgage with a reverse mortgage, then "continue" their current mortgage payments, but instead of paying a forward mortgage, the borrower pays into the reverse mortgage line of credit. The line of credit will increase substantially, until needed at the full retirement age of 70-75, Sometimes the reverse mortgage line of credit availability will exceed the home value, but the lender cannot call the loan because of this excess line of credit availability.
Choosing between a monthly payment, a line of credit, or a one-time payment, you can get a loan based on your equity. Repayment isn't necessary until the time the homeowner puts his home up for sale, moves (such as into a care facility) or passes away. You or your estate representative must pay back the reverse mortgage loan, interest accrued, and finance charges after your property is sold, or you no longer live in it.
their homes. The lending institution gives you funds determined by the equity you've accrued in your home; you receive a lump sum, a monthly payment or a line of credit. The borrowed money doesn't have to be repaid until the borrower sells his home, moves away, or dies. After your home has been sold or you no longer use it as your primary residence, you (or your estate) must pay back the lending institution for the funds you obtained from the reverse mortgage plus interest and other finance charges.
The Next Steps
The first step is to call Ginger Sullivan (505-995-8888) to discuss your current circumstances, and how you might eliminate a monthly mortgage payment, and possibly create an additional income resource. Are you planning to sell your current home and downsize, or do you want to stay in your current home? Depending upon your scenario, Ginger will put together Reverse Mortgage choices for you, in written format, which you can then begin to assess -- applying the different scenario(s) to your personal financial situation.
Next, we'll plan a more in-depth discussion with your financial advisor and/or family members. A reverse mortgage doesn't work for everyone, according to family plans and/or advisor thoughts. We need to make sure everyone agrees to moving forward -- of course, at this point there is still no obligation. You are still in exploratory mode.
Then, prior to a Reverse Mortgage loan application, you are required to attend a HUD (Housing & Urban Development) FHA advisor meeting. You may choose to attend this by yourself, or you may include your family and/or advisory people.
At Anasazi Mortgage, we can give you and your family succinct answers to your questions about reverse mortgages. Give us a call at (505) 995-8888.