Reasons to Consider a Reverse Mortgage

There are many reasons to consider a reverse, especially in today’s economy. And they aren’t for everyone. Covering basic expenses has gone up. Want to upgrade your home? Pay for someone’s education? Travel? It may be worth thinking about.

It will always be your home – A reverse mortgage is very similar to a standard mortgage. The only difference is, instead of you making payments every month, the equity you have built up in your home makes the payments for you.

You can pay the loan down like a normal loan if you like. You can refinance into a normal, forward mortgage any time you like. You can sell the property whenever you wish. You can will the property to the relative or heir you choose. But as long as you live in your home, at least 6 months of the year, you will never be required to make another mortgage payment or pay on any additional cash you receive.

If you are at least 55 years of age or older, and have at least 60% equity in your home, you probably qualify. Call us for a quote.

Requirements

  • Certificate from a HECM information class – the FHA (Federal Housing Administration) added a requirement to take a class explaining reverse mortgages from one of their authorized companies. They are unrelated to the loan, by design, so they are a good neutral source of information on HECM loans. You can have anyone you like listen in, and you will get a certificate after taking the class. Lenders need this to proceed with your loan.
    • Generally companies charge $150 – $200 to take the class, but many of the class providers have government funding so it won’t cost you anything! We will help locate the ones who offer it for free that you can choose from.
  • Your Age – The age requirement for a standard HECM loan is 62 years of age or older, however several years ago they changed the rule, so if one spouse is at least 62 it doesn’t matter how much younger the other spouse is, you will qualify on the age rule. We also represent specialty HECM programs that will accommodate people 55 years of age or older.
  • Your Equity – Pre-COVID we could lend up to 50% of the property’s value. Once rates started spiraling higher, most programs cut that back to about 35% to 45%. We have access to all the major programs so we will find the one that will give you the most, and cost the least.
  • Your Property – It must be your primary residence. Single Family Residences are fine, and so are most condos, but the condominiums must be FHA certified to qualify, as the loans are primarily FHA insured. Note: if your condo is Not FHA certified, there may be a method where you can request a single unit certification, as long as under 50% are rentals.

Negatives of a Reverse Mortgage

  • The biggest downside to a reverse mortgage is that you are spending equity instead of gaining it. You get to access the equity in your home, without moving, paying taxes (confirm this with your tax professional), or making a mortgage payment. With a HECM loan, the property makes the payments. So each month, small amounts of the equity are spent to pay the mortgage. The Reverse mortgage.
  • Equity left for your heirs – We have found that the equity you start with generally tracks over time. So let’s say you have a $500k loan against a $1M property. Let’s also say in 10 years you have gone through $100k more equity in payments, so you are down to $400k in equity. However, over the next 10 years, the property value will likely increase. If it goes up by $100k you now have a $1.1M property with $600k against it so you still have $500k in equity. This is a total guess considering the strange economy we are in, but has tended to remain close to what you started with for many years now.
  • Who gets the property when you pass? – One of the biggest issues with reverse mortgages used to be, when you left the planet the bank took the property and whatever equity was left. Since 2008, many things have changed. Now you can leave the property and whatever equity is left to anyone or whatever charity you choose. If there is equity, they can refinance and keep the property, or sell it and spend the equity on whatever they like. If it is upside down (you owe more than it is worth) your heirs can either give the property back to the bank, or they can buy it from the bank at 95% of its current appraised value. No one is responsible for any overage.

Contact us for a formal quote.

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