REVERSE MORTGAGES

Why am I sharing information about Reverse Mortgages?

There are some good reasons, but before we get into it, and the details about reverse mortgages, I think it is important for you to know that I have assisted clients with reverse mortgages to purchase a new property and refinance their current mortgages to maintain their preferred lifestyle. I wasn't involved by referring it to a loan officer, but rather in structuring the financing, crafting the purchase agreement and explaining it to other real estate agents that it can be done.

In all cases it has been successful and the net equity in the property is greater than when the reverse mortgage was put into place. This is important to understand because the way a reverse mortgage works is that you're borrowing from your equity on a monthly basis instead of making an actual mortgage payment. But remember, yes, your mortgage balance is increasing, but you're keeping that money that you would have used to make your mortgage payment in the bank! And your home, based on historical statistics, will be appreciating at a greater percentage than the mortgage is increasing.  So as you learn more about reverse mortgages keep in mind that there are many appropriate and necessary needs where a reverse mortgage can be the solution.

First, we understand that selling a home is an emotional process, especially if it’s a home that you’ve lived in for many years, you’ve made thousands of memories, and you just don’t want to leave that home! Maybe, because of financial changes, retirement, or medical issues it has just become financially challenging to continue to maintain the home and make the existing payments.

You have a couple of options. Sure, one option would be to sell your home and buy a more affordable home for your budget, but what if I told you we have a solution for you to stay in your home? Would that be the better alternative to selling your home? If the answer is YES, we can assist you in staying in your home and we'll show you how.

What is a Reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM)?

A HECM (Home Equity Conversion Mortgage) is a special type of mortgage that enables homeowners age 62 or older to tap into the equity in their home. Unlike traditional home loans, no repayment of the HECM loan is required until you no longer occupy the home as your principal residence. No mortgage payment!

      Do you qualify for a Reverse Mortgage?

– Must be a minimum 62 years of age. Age of the youngest borrower determines eligibility.
– Non-Borrowing Spouses under 62 are allowed.
– Max loan amount is the lesser of:

For the government-insured Home Equity Conversion Mortgage (HECM), the maximum reverse mortgage limit you can borrow against is $1,089,300 (updated January 1st, 2023), even if your home is appraised at a higher value than that.
– The older the home owner is and the higher the value of the home, the more proceeds or loan amount you will be qualified for.

– The home does not need to be paid off, but the more equity you have, the greater amount of a monthly distribution you can receive. AND, you don’t need to qualify based on rigid lender guidelines for a traditional mortgage! This is an enormous feature.

      Benefits:

– No monthly mortgage payment is ever required.
– There is a ‘Credit line’ that grows over time. Yes, over time your credit line that you can access grows.
– Unused available funds grow at the same rate as the interest being charged.
– Qualified home owners should look at home equity as asset allocation.
– No pre-payment penalty.

– Make payments if you want.
– Funds are tax free.
– Homeowners keep all future appreciation, no equity sharing.
– Borrowers retain title to the home.

– No limitations to how the borrower may use the funds.
– Accessibility – qualifying is much easier than a traditional mortgage.
– Allows seniors, 62 or older to purchase a home with HECM proceeds. 
– Purchasing power – lower upfront investment than a cash purchase.
– Buy up – buy more house than you thought you could afford.
– Retain vital cash liquidity for future retirement needs.

As you can see, a reverse mortgage can create a lot of flexibility and financial relief.

Another example of where a reverse mortgage can be a solution is with a person that would like to purchase in a retirement community that conventionally is out of their reach, or maybe a home near the beach, or in the mountains. With a reverse mortgage your budget can be stretched and now that lifestyle may be possible.

Or maybe they need to downsize, but will need funds to make some modifications to the home so paying all cash for a home would be difficult.

Likely in retirement one’s income is less than it was when they were working. If you choose to sell your home and purchase a new home that’s more conducive to your needs, a reverse mortgage can be a tremendous tool to use so you don't have the monthly mortgage payment obligation.

A reverse mortgage can also be a financial tool for those that could pay cash for their new home. Instead of using all the proceeds from the sale of your home to purchase the new home now you can reduce the amount of your down payment and use the remaining funds for other investments that can generate income.

Or, let me share how a reverse mortgage can change your lifestyle.

Given that you have sufficient equity, you can sell your existing home. Purchase a home that better suits your needs, without paying all cash and with the remaining funds, purchase a second home in your favorite vacation place….and when you’re not using it, rent it out through a management company to generate additional income. 

You still own your home!

People say, “I don’t want a reverse mortgage because I want to own my home, not the bank.” This is a common concern I hear from homeowners as to why they don’t want to get a reverse mortgage. This just isn't true. Whether it's a normal (forward) mortgage or a reverse mortgage, you still own the home subject to the mortgage. THE DIFFERENCE though is very important – On a regular mortgage you have a set payment you need to make every month, and if you don’t make that payment the lender will foreclose on your home. With a reverse mortgage, there is no monthly mortgage payment obligation! Instead the payment that you would have made stays in your bank account and the equivalent of the monthly interest is added to your loan balance. There is no risk of defaulting on the mortgage and having the lender foreclose on your home.

Reverse Mortgages haven’t received the positive attention they should. They can be a wonderful tool for retirees to maintain a lifestyle, or just to be able to meet their month to month obligations.

I want to make sure that our clients understand their options. Selling a home is an emotional process and we’re very aware of that. Sometimes circumstances make it necessary to sell your home, but there could be solutions to help you stay in your home. A Reverse Mortgage can be that solution and can be used as a retirement tool. A Reverse Mortgage will eliminate your monthly mortgage payment, and you could receive a monthly distribution each month into your bank account as well. Yep. Not only will you save money by not having to make a payment, but you can receive a check every month, too.

      Consumer Protections:

Over the last 15 years steps have been taken to better regulate and protect the consumer and they are quite powerful for the consumer.

– Reverse Mortgages are Non Recourse Loans.
– A Non Borrowing Spouse (< 62) is now protected!
– All FHA HECM’s are insured through the Federal Housing Administration (FHA).
– Borrowers have no limit as to how long they can stay in the home.
– Education – counseling is required so you can ask your questions of a neutral third party.
– Created by the Housing & Economic Recovery Act of 2008.
– Mortgage Insurance Premium (MIP) ensures the amount owed on the loan can never be more than the value of the home at the time of sale.

That's a lot of stuff but if you're still with me I believe you understand the benfits of a reverses mortgage (HECM).

We want you to know your options so you can make the right decision. Whether it’s applying for a Reverse Mortgage to stay in your home, selling your home, or buying a home (with a Reverse Mortgage), we would love to interview for the job.

You don’t need a realtor telling you that selling your home is the best option for you so they can make a commission! We want to help people that want to sell their home, when they want to. When you decide what's best for you, we can put the process in motion for you and guide you along the way.

If you’re interested in discussing more about a Reverse Mortgage and how it can be a solution for you, please contact me. 

Jim Hitcher

Broker Associate

(925) 785-8364