There is a unique mortgage available to optimize retirement cash flow without having to sell your home and it is called a Reverse Mortgage. To better understand what it is and who can use it, I’ve put together a little question and answer which should clarify most of your questions.
What is a Reverse Mortgage?
It’s a special type of loan that enables individuals aged 62 or older to convert some of their home’s equity into tax-free cash. Unlike traditional equity loans, no repayment is required until the home is no longer the principal residence.
Who is eligible?
Homeowner(s) at least 62 years of age and occupy the property as their principal residence. Eligible properties include single-family homes, condos and townhomes or a 2 to 4 unit dwelling. The home must be owned free and clear or have a small balance that can be paid off with a reverse mortgage. No income, employment or credit requirement.
How much cash can a homeowner receive?
The amount that can be borrowed is based on a HUD formula that factors in the age of the youngest homeowner, the interest rate, appraised value and county where the home is located.
What are some of the benefits?
The reverse mortgage customer always retains ownership and lives in their home. Cash advances can be used for any purpose. Loan proceeds are not considered “income” and do not affect social security, Medicare, SSI or Medicaid benefits. The heirs can keep the home after repayment of the loan.
What type of interest rate options are there?
The reverse mortgage is an adjustable rate loan linked to the one-year U.S. Treasury rate. Any adjustment in the rate has no effect on the amount or the number of loan advances the customer can receive, but causes the loan balance to grow at a faster or slower rate.
What are the tax-free cash options?
- Lump sum advance makes cash available.
- Tenure plans provide fixed monthly advances.
- Line of Credit makes cash available on request.
What are the costs involved?
There are closing costs which can be financed into the loan. These closing costs may include an origination fee, title insurance, appraisal fee, mortgage insurance premium and attorney fees. Typically the out of pocket expenses equal $350. The customer is expected to continue maintaining the property, paying the real estate taxes and hazard insurance premiums.
How is the loan repaid?
A reverse mortgage is due and payable when the property is no longer considered the customer’s principal residence. The loan must be repaid in one payment either from the sale of the home or through other resources.
Consumer Education
Reverse mortgage borrowers are required to obtain a certificate from a HUD approved agency. The purpose of this is to be sure that the borrower understands the reverse mortgage completely. There is no fee for counseling and the certificate must accompany an application.
This loan can be a very good option for people who are house rich and cash poor meaning that there is a fair amount of equity in the home and your income does not meet your expenses. I work with a lender who specializes in reverse mortgages and can help you assess whether or not it might be a good match for your situation. And my specialization through my seniors real estate specialist (SRES) designation is working with adults over the age of 50 and understanding their unique needs.
For more information about reverse mortgages or the Fort Collins real estate (and surrounding areas) market then visit www.SearchFortCollinsMLS.com or email me at Mike@MikeMalvey.com.
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