I still see and hear so many misconceptions about Reverse Mortgages. Education is the key to making a solid decision. If you or any senior that you know is considering a Reverse Mortgage....get the facts. They can be a lifesaver to some.
My husband just helped a couple who owned a first and a second home and had equity in excess of $700,000, yet they were in foreclosure on their primary, because due to circumstances, they were unable to make the payments. These sweet folks were desperate. They never should have had that stress!
My husband was able to do a Reverse Mortgage on both properties and now they have NO PAYMENTS! They went from having 2 first mortgages and 2 second mortgages to being debt free. And they received $75,000 cash at closing. It was truly heartwarming to help these people.
Below is some of a presentation that John and I put together.
What Is a Reverse Mortgage?
- A Reverse Mortgage is a non-recourse loan that allows homeowners age 62 or better to convert home equity into cash.
So what does non-recourse mean?
- The homeowner or their heirs will never be asked to pay back more than the value of the home, even if the debt has grown to be greater than the value. This is not the case in traditional loans and equity lines.
Why would a senior consider a Reverse Mortgage?
- Seniors will never have to leave their home
- No income, asset or credit qualifications
- No monthly mortgages payments are required
- No repayment of loan until the last borrower permanently moves out
- Proceeds are tax-free Interest may be deductible upon loan repayment (Please consult your tax advisor for details)
How much cash can I get?
- Loan proceeds available to the borrower are based on three main factors:
- Age of homeowners
- Value and location of home
- Current interest rates
- Loan is repaid at permanent move out, and repayment never exceeds value of home. The amount repaid is principal, accrued interest, and service fees.
So, now I know how much I can get. How can I take it?
- Lump Sum
- Monthly Payment
- Term Payment /Tenure (or lifetime) Payment (contrary to popular belief, this is really a lifetime payment, not until the money OR equity runs out)
- Equity Line - Interest is not charged on what you don't use! Please note that this is what is called a "growing" equity line. The money available on this line of credit will increase automatically, by the same rate that is being charged on the principal balance. OR A CUSTOMIZED COMBINATION CAN BE ARRANGED BASED ON INDIVIDUAL CIRCUMSTANCES
Are there any tax implications?
- Proceeds from a reverse are tax free and not considered income. (Please consult your tax advisor)
- Beware: If a senior is dependent on the home mortgage interest deduction to keep themselves in a particular tax bracket, they should consult with their tax professional before getting reverse mortgage.
Some of the uses for Reverses Mortgages
- Health Care Costs
- Repay Existing Mortgages
- Reduce Burden on Children
- Home Repair/Improvement
- Purchase a property
- Reverse mortgages allowed on second homes
What about listing a property that is encumbered by a reverse mortgage?
Reverse Mortgages must be paid back within 12 months of the last borrower passing away. It is important to keep this in mind when coming up with your proposal to market the property. Careful consideration should made to the time limitation you may have to sell the property. It is also important to remember that the clock starts ticking when the last borrower passes away, NOT when the probate process is finalized. This may further reduce the time you have to sell the property.
Current Reverse Mortgage Products:
- HECM - FHA's version with fixed rate option. Government has passed bill to raise the national lending limit to $417,000 (up to $625,000 in high cost areas) can be used for a purchase
- HomeKeeper - FNMA's version -Higher interest rates, can be used for purchase, national lending limit of $417,000 and purchase option
If you have any questions or interest, let me know. My husband, John, specializes in Reverse Mortgages and has been in the mortgage industry for 20 years now. He loves helping the seniors and feels that he has found his niche!