What Could NOT Having a Mortgage Payment Do For You?
You’ve turned 62 (now available beginning at age 55!) and are thinking about Retirement. Bills are tight and you’d like to be able to get rid of your debt before you figuratively ride off into the sunset. You want to be able to enjoy your retirement and you’ve heard about Reverse Mortgages but it all sounds so complicated. What type should you choose? What, exactly, can you do with a Reverse Mortgage?
Before dissecting which types of Reverse Mortgages offer what advantages, it is important to note that a Reverse Mortgage is, in fact a loan. In the simplest terms, the homeowner takes a loan against the value (equity) of their home. When the homeowner dies or moves out permanently, the home is sold or refinanced, and the funds goes to pay off the existing Reverse Mortgage loan.
Proprietary (also called Jumbo Reverse Mortgages) Reverse Mortgages are designed for homes of higher value. The greater the equity available in the home, the greater the payout either in a lump sum or lump sum payout plus a line of credit after paying off any existing mortgage on the home.
HECM- Home Equity Conversion Mortgages the most common type of Reverse Mortgage. The HECM has a lot of flexibility when it comes to options on receiving the funds available. This type of mortgage is backed by the Department of Housing and Urban Development (HUD)
There are several factors that are taken into consideration during the application process. Factors that determine the loan amount available are the age of the youngest borrower, appraised value of the home, and the reverse mortgage loan program that best fits the desires of the borrowers. There is also a financial consideration in that the lender wants to make sure that the homeowner has the resources to pay property taxes, homeowners’ insurance and maintain the property.
Once a type of Reverse Mortgage has been selected, decisions can be made about how to spend the money received. Let’s look at some reasonable options for spending the payments from these Reverse Mortgages.
- Proprietary (Jumbo) Reverse Mortgages: As mentioned, these mortgages are designed for homes with a higher value. Funds received from a proprietary or Jumbo Reverse Mortgage may be spent however the borrower wishes. If the line of credit option is available and chosen those funds will be available for 10 years for the borrower to tap into as needed or desired.
- HECM- Home Equity Conversion Mortgages: This type of mortgage is the most common. The HECM has three options on how funds are received depending on the loan amount available after paying off any existing loans on the property. The borrower may take a lump sum, monthly payments (either term or tenure) and or a line of credit. It is also backed by the Department of Housing and Urban Development (HUD).
Paying off credit card debt or medical bills is a common choice on ways to use the funds available. As clients near retirement (or have already retired) and are now living on social security, monthly expenses aren’t always completely covered. Paying down debt can be a huge relief and can also ease the stress of making money stretch a bit further.
Make repairs to the home and thereby possibly increasing the value of the home. Everyone knows home repairs can be incredibly expensive, especially if the repair is for the roof, the foundation, or a water heater. It could also be used to make additions to the house such as solar panels, energy-efficient appliances, or weatherproofing windows.
Medical care and home-based services can be extremely expensive. Insurance-or Medicare- covers certain things but there are often co-pays, medications or procedures that are either not covered or only partially covered.
Home-based services, and palliative or rehabilitation care is needed, providers can come right to your home and care for you there. Nurses and therapists can make home visits even if insurance won’t cover it. Payments from a reverse mortgage can be used to pay for many of these services; your choice, your home.
Vacation! Believe it or not, a client can go for a vacation. Do you have dreams to travel? Let a reverse mortgage provide you with the resources to fulfill those dreams! Retirement is a time to relax and have fun. Let your Golden Years truly be golden for you.
In a nutshell, a Reverse Mortgage offers a wide variety of options and flexibility. It can offer a level of comfort that as retirement approaches, homeowners can remain in their homes and still live comfortably. When considering a Reverse Mortgage, it is extremely important to sit with a counselor and discuss the process, options and expectations in depth. Scams are prevalent so it is vital to compare and contrast services and the options they offer.
Author: Laura Ferris Biché, is a Certified Mortgage Advisor. As a mortgage advisor with twenty-five years in the field, Laura is committed to taking the time to know your story so that she can address your lending wants and needs. In understanding your story, Laura is able to navigate you to options and through the process strategically and safely and offer a deep understanding of the mortgage industry.
Reverse Mortgage Specialist
Senior Mortgage Planning Specialist
NMLS 305746 | DRE 01193217
Interest rates and annual percentage rates (APRs) are based on current market rates, are for informational purposes only, are subject to change without notice and may be subject to pricing add-ons related to property type, loan amount, loan-to-value, credit score and other variables—call for details. This is not a credit decision or a commitment to lend. Depending on loan guidelines, mortgage insurance may be required. If mortgage insurance is required, the mortgage insurance premium could increase the APR and the monthly mortgage payment. Additional loan programs may be available. APR reflects the effective cost of your loan on a yearly basis, taking into account such items as interest, most closing costs, discount points (also referred to as “points”) and loan-origination fees. One point is 1% of the mortgage amount (e.g., $1,000 on a $100,000 loan). Your monthly payment is not based on APR, but instead on the interest rate on your note. Adjustable-rate mortgage (ARM) rates assume no increase in the financial index after the initial fixed period. ARM rates and monthly payments are subject to increase after the fixed period: ARMs assume 30-year term.
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