| What
is a reverse mortgage? | return to top
- A reverse
mortgage is a loan against your home that you do not have to pay back
for as long as you live there.
- No matter
how this loan is paid out to you, you don't have to pay anything back
until you die, sell your home, or permanently move out of your home.
- To be
eligible for a reverse mortgage, you must own your own home and be
62 years of age or older. Essentially, it is an insured and effective
way to access the equity you've built up in your home and turn that
equity access into cash flow for any purpose you desire.
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| Why
would I need or want a reverse mortgage? | return
to top
- When
you were making plans for your retirement, you assumed that there
would be enough monthly income from your retirement portfolio, possibly
supplemented by Social Security and pensions.
- Life
changes may be preventing you from living at the level you had forecast
and a reverse mortgage can provide the additional cash flow to fill
in that shortfall or bring you the additional cash flow to handle
the unanticipated events that can disrupt your future returns from
your retirement plans.
- Typical
usage of a reverse mortgage varies from paying off existing "forward"
mortgages, excessive credit card debt, medical debts, in-home companion
or health care capabilities. Since most folks are now saying they
intend to remain in their home for as long as they are capable, the
money from the reverse mortgage could be used for home improvements.
- There
are many other uses for a reverse mortgage and they are not always
for the house rich, cash poor client. Seek advice from your financial
planner to better understand how the reverse mortgage
can be a great estate planning
and cash flow vehicle.
- Also,
recent housing legislation will allow for folks looking to downsize
to be able to use a reverse mortgage as a vehicle to purchase a smaller
property of real estate.
- Instead
of using all of the proceeds from the larger, more expensive home,
the client could put down roughly half the value and finance the
other half of the loan with a reverse mortgage.
- Instead
of making regular monthly mortgage payments, the new FHA bill
will allow that no payments will be required on the financed portion
which leaves more cash in the retirement account instead of tied
up again in the home.
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Do
I qualify for a reverse mortgage? |
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- You
qualify for a reverse mortgage if you are 62 or older and have some
equity in your home.
- How
much equity depends on your age, where you live and the current expected
rates.
- The
older you are and the less you owe on your home will yield more equity
access as far as cash flow is concerned.
- Certainly,
if your home is owned free and clear, you would be able to secure
a reverse mortgage as long as your home is a property that is typical
for your area and meets FHA guidelines.
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How
much money can I get? |
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- Again,
how much money you can get depends upon your age, your current home
value, your county of residence and the current expected rates.
- The
older a person is and the more valuable the home, the more access
to equity they have.
- The
lower the expected rates, the more access to equity and conversely,
the higher the rate or the younger the borrower results in less access
to equity.
- Typically,
folks can get 40 to 70% of the value of their home in equity access
and that would include paying off any existing "forward"
mortgage.
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How
is a reverse mortgage different from a bank home equity loan?
| return
to top
- Simple,
a reverse mortgage does not need to be paid back as long as you remain
in the home and a home equity loan will require monthly payments until
the loan is paid off.
- In most
cases where cash flow is of short supply, a home equity loan only
adds to the monthly cash flow shortage and is a short term solution.
- Your
home could be foreclosed upon if you were not to make your home equity
payments, but since you don't make payments with a reverse mortgage,
you can't be asked to leave as this is a non-recourse loan.
- A non-recourse
loan means you can never owe MORE than the market value of the home,
regardless of how much money you've used with the reverse mortgage.
- FHA
insures their loans with mortgage insurance to protect the homeowner
from this happening.
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Can
my home be taken away if I outlive the loan? |
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- Your
home can not be taken away from you if you outlive your loan as long
as your taxes and insurance are paid and the property is kept up and
maintained.
- You
remain title holder the entire time the loan is in process.
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Will I still have an estate that I can leave to my heirs?
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to top
- In most
cases, there is some equity left for heirs, but it depends upon how
long the loan is in place and how much of the equity is used during
the life of the loan.
- For
someone that just want to get rid of their current "forward"
mortgage to get rid of monthly mortgage payments, they can leave any
remaining equity in the credit line function of the reverse mortgage
that grows over time at prevailing rates.
- That
credit line will never decrease in value if left alone and can yield
significant returns for any purpose whatsoever.
- A reverse
mortgage is not marketed nor was designed as a short term loan. Even
though the home values have recently dropped in most areas, the value
trends say that when home values start to increase again, more estate
value will remain for heirs.
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Should I use a financial or estate planner to find a reverse
mortgage? |
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- At Wealth
One, Inc., we've come to realize that most financial planners and
estate planners are not that well versed in reverse mortgages, so
it depends on who you seek advice from.
- We have
also come to realize that once these folks fully understand how they
work and their potential capabilities as a supplement to retirement
and estate planning, they then include them as possible tools in their
processes.
- The
purpose of Wealth One, Inc. is to connect folks to best-in-class services
in the area, whether they include reverse mortgages or other types
of eldercare
planning tools.
- Please
see our Financial Planning
recommendation and trusted team member.
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How do I receive my payments? |
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- You
can receive the equity access in varying ways.
- Most
folks put all their available cash from the reverse mortgage into
the credit line function, where they have access to their money anytime
they need it but when they aren't using it, it grows over time at
prevailing rates. (The current return is 4.5% but it can vary monthly).
- Other
folks take the money as lifetime tenure payments which are monthly
payments they get each month for as long as they live in the home,
regardless of the future home value or how much money has been paid
out.
- Other
ways to receive the money are lump sums or fixed monthly payments
called term payments.
- A borrower
can select a variation of these and can change their proceeds method
at any time with a nominal fee but you are not locked into this method
when you put it into place.
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What
is reverse mortgage counseling? |
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- Reverse
mortgage counseling is required by FHA and is done by a certified
credit counseling agency that has understood and passed a rigorous
national exam administered by AARP.
- These
counselors use loan analysis and comparison software to give you an
unbiased and comprehensive advice as well as share with you the other
alternatives to a reverse mortgage such as selling or downsizing or
moving into an apartment or with family members.
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What
is the truth about allegations of "deception" or "bad
press" regarding reverse mortgages and annuities? | return
to top
- Some
unscrupulous reverse mortgage agents are securing reverse mortgages
for their clients with the hope that the large lump sum of money made
available by the reverse mortgage be put into annuities for higher
commission capabilities, kind of a double whammy.
- They
get the sale of the reverse mortgage and then also get the sale of
the annuity, all the while keeping you from accessing the cash you
were short on to begin with.
- Not
all annuity sales are bad and in some circumstances, a reverse mortgage
would be an acceptable tool for delivering cash for the annuity purchase.
- Wealth
One, Inc., the National Reverse Mortgage Lenders Association and HUD
have all made their views public that the 2 do not make acceptable
partners without serious professional advice and warnings.
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