Can A Reverse Mortgage Help You?
A Reverse Mortgage is a Federal Government sponsored program that enables homeowners age 62 or older to convert part of the equity in their homes into tax free income without having to sell the home, give up title to the home, or take on a new mortgage payment.
A Reverse Mortgage can be a powerful financial tool for seniors who own their homes. It can make them more financially independent by allowing them to free up additional funds each month by erasing their current monthly mortgage payment (if they have a mortgage payment). If the senior does not have a mortgage payment currently, the reverse mortgage will allow easier access to the equity in the home, without having to qualify for a traditional loan.
Either way, the cash accessed through the reverse mortgage can be used to fund other financial endeavors, such as paying for a long-term-care policy, paying for care in the home, or paying for daily living expenses, taking that dream vacation, or other needs and wants. And it does all of this while still allowing the senior to maintain ownership of their home.
Ideas For Using A Reverse Mortgage
- Pay off an existing mortage and make NO monthly mortgage payments
- Delay Social Security to maximize benefits.
- Supplement income to help investments “bounce back.”
- Combine with public benefits to maximize income.
- Create a reserve for emergencies or unexpected expenses.
- Obtain money for long term care needs.
- Help a senior in trouble or in foreclosure proceedings with a short sale.
- Fund a family member’s education.
- Help in dividing assets in divorce.
- Help a family member who has lost his/her job.
The above list is just a few popular ways that the funds from a reverse mortgage can be used, and each senior’s personal situation and needs will ultimately determine the ways the money will benefit that person.
Aging in Place – Using Your Home to Stay in Your Home
In the past, when a senior had difficulty living on their own, it was a signal that it was time to move in with family or go to a nursing home. But for most people, this is no longer the case. Today, you can continue to live on your own for many years, even as you grow older and begin to need help with everyday tasks. This is often called “aging in place.”
Aging in place means more than just having the ability to stay in the home if diagnosed with a chronic illness such as diabetes, arthritis or Alzheimer’s, or if there is difficulty with the 6 activities of daily living. Aging in place also means having your home be a safe place to live that fits your abilities. This could mean performing necessary modifications to the home (adding a ramp or a lift, for example), that can extend the time that you can safely live at home.
For many people, a reverse mortgage has been the perfect financial tool, providing the funding to be able to stay in the home, pay for their care at home, perform modifications to the home, and more.
Accessing the Money
In addition to erasing the current monthly mortgage payment, the reverse mortgage also allows access to that dormant asset – the equity in the home, without the credit and income qualifications of a traditional mortgage refinance.
There are 4 ways to access the funds from a reverse mortgage:
- 1. Lump sum
- 2. Scheduled payments (monthly or annually up to the end of their life)
- 3. A line of credit
- 4. A combination of the above 3 ways
No payments are due during the life of the loan. The loan is repaid when the last surviving borrower sells the home or moves out of the home permanently, and even then you (or your heirs) will never owe more than value of the home at the time you sell the home or repay the loan. This is true even if the value of your home declines.
A Home Equity Loan with A Twist
With a traditional home equity loan, you get the money now and start paying monthly principal and interest payments until it’s paid off. The difference with a reverse mortgage is that you get the loan now, and the loan is due up to one year after the last spouse passes away or moves out. Over the years, the amount owed is like a traditional loan where the interest accumulates until it is paid off.
A safety device is built into the loan where the loan payoff can never be more than the sale value of the home in the future. This protects a spouse or children from being responsible for the difference. No matter where you get the loan the interest rate, closing costs and terms are all the same. The federal government is the backer of the loan and the lender gets paid up front.
How Much Can I Borrow?
The amount of funds a person is eligible to receive depends on three factors:
- Their age (of the youngest person on title) – must be 62 or older
- The home’s appraised value
- The current interest rate
In general, older borrowers and/or those with more equity in the home can access more money than younger borrowers and/or those who owe more on the home. Give us a call at 1-866-798-4423 to discuss your personal situation, and we will happily illustrate exactly what amount you are eligible for.
Common Misconceptions About Reverse Mortgages
Misconception #1 - With a reverse mortgage the bank takes your house at the end.
Incorrect! With a reverse mortgage you and your spouse continue to own the home, and are the only names on the deed or title. Reverse mortgages are designed to tap only a portion of your equity, so you may be able to pass on an inheritance, or have money left over from the sale of your home should you decide to move.
Misconception #2- When a reverse mortgage comes due, the bank sells the home.
Incorrect! When the loan must be repaid (a year after the last spouse dies or moves out of the home,) that person or their heirs can either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. You or your heirs keep money left over from the sale of the home, above and beyond the reverse mortgage balance, and you (or your heirs) will never owe more than value of the home at the time you sell the home or repay the loan, even if the value of your home declines.
Misconception #3 – Reverse mortgages are expensive
The fact is, the costs to do a reverse mortgage are very similar to the costs of a conventional home loan or mortgage refinancing. These costs include an origination fee, appraisal fee and third-party closing costs (fees such as appraisal, title search and insurance, surveys, inspections, and recording), and mortgage insurance premium. Most of these up-front costs are regulated by the government, and there are limits on the total fees that can be charged with a reverse mortgage. Also, except the appraisal, generally all of the closing costs can be rolled into the loan.
Misconception #4 – You must be debt-free to qualify for a reverse mortgage.
Incorrect! Even seniors with an existing mortgage and other debts may qualify for a reverse mortgage. The reverse mortgage can eliminate the need to continue to make monthly payments on that debt, freeing-up valuable cash on a monthly basis.
Misconception #5 – Reverse mortgages are only for desperate seniors, or for the “house rich, cash poor.”
Incorrect! This type of loan is used by homeowners from all walks of life to enhance their retirement years. The growing popularity of this product highlights its benefit to help homeowners deal with many different financial situations.
Reverse Mortgage Counseling is Mandatory
It is important to note that borrowers must first meet with a government-approved independent reverse mortgage counselor before the loan application can be processed, and before the borrower incurs any costs. This counseling is required by federal law under HUD (U.S. Department of Housing and Urban Development), and HUD requires that a borrower receive a certificate from this counseling. This is an important safeguard and consumer protection, and a necessary element of any reverse mortgage.
Why Should You Work With JFG for A Reverse Mortgage?
A reverse mortgage is not for every senior homeowner. Every situation is unique, and at Johnson Financial Group, we are knowledgeable about many financial strategies and tools. Because of this, we will not push anyone into a reverse mortgage without first fully understanding the complete financial and family picture, and ruling out all other options.
At JFG, we will always take the time to LISTEN to what our clients’ concerns and needs are, then we ASSESS the overall situation, then we REVIEW THE OPTIONS to solving the problem with our clients. A reverse mortgage may or may not be the best solution to a particular client’s problem, and our goal is to provide our clients with the information to choose the best option for themselves, and their family. An informed decision is, more often than not, the right decision. That applies to reverse mortgages, or any other financial product.
If you are considering a reverse mortgage, and would like unbiased, objective advise about whether or not a reverse mortgage is right for your situation, give us a call at 443-807-7311, and let us get you the information that will help you make that decision. Or email us, or complete this form, and we will contact you.