Reverse Mortgages - Going Forward, not Backward
Say, I just attended a class that has opened my eyes to an option I've never heard before without being suspicious- called Reverse Mortgages. This is a loan available to seniors ONLY, that are 62 and older. A Reverse Mortgage is a home equity line of credit that requires NO PAYMENTS a person has to make on a loan, where the home owner's
obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care). The hope (and therefore possible liability) of the investor/lender is that the increased value in the home will be used as the interest (typically a little less than typical) payments secured on the home. A reverse mortgage can also structured to be used to release the home equity in the property as one lump sum or multiple payments. A reverse mortgage is analogous to an annuity
where the principal and interest are paid with home owner's
You know how when you attend something, initially thinking, "Is this multi-level or something?" and then you come to find out it is just another financial instrument you've never heard of that could otherwise be associated anyway. Well, this is it, another financial instrument, but for people over age 62, only what I really believe to be true- is without any phony associations of misapplication of distribution systems. The only drawback here I believe is that yes, their may not be any equity after the loan is paid to be distributed to heirs. But that real drawback is perhaps offset by the efficacious study of options to our seniors who otherwise would lack a quality of life in their later years. The real drawback then- is a lack of education, not to mention the evolving changes involving paying for reverse mortgage counseling and the decreasing pricey-ness to do the transaction, being between $8,000 to $12,000. Just for comparison, conventional loan costs to compare a typical $250,000 loan may be $6000 to $8000.
I wanted to know the bottom line first when attending that class, but I got the 'logistics' or "nuts and bolts", which is not a bad way to go. But if I could sum it up in groping for my bottom line I might say this, for those who have some idea already regarding reverse mortgages: It's not so much a way to squander equity from one's heirs, but a way to leverage or possibly relieve cash flow [problems], indeed a way to free up money for either "necessitated" uses, like paying bills, or other "enhanced" uses, like to take and invest the difference. If you didn't have a house payment, what could you use that money for, that could make you more money?!? Buy another house?
St George Utah Retirement Real Estate Expertise Implications for Utilizing Reverse Mortgages
So, what will be the implications be for me helping St George Utah Retiree's looking to move to the St George Utah area?
- My buyer client can purchase an even nicer, or more suitable property than might otherwise be affordable. Affordable may also be defined as not wanting to pay payments, therefore only a house one has cash to pay for. So, keep in mind that a sizable down payment needs to be part of what equity is available to do a reverse mortgage off of. If you are in your 60's we can get you about 1/2 again on top of what your original down payment is to cash out the home and still have NO PAYMENTS TO MAKE. For example, if you thought in order to have no payments, you'd only be able to afford a home by paying all cash on a $150 home... well, now you could afford a home up to $300,000 and STILL HAVE NO DOWN PAYMENTS to ever have to make. Well, as to not try and be selling you something, two non "nuts and bolts" considerations would be: the total amount of cash you get from the loan; and the amount of equity you or your heirs get to keep at the end of the loan (see http://www.aarp.org/money/revmort/revmort_basics/a2003-03-21-totalcosts.html).
- Purchase a second property now, rather than later, using reverse mortgage funds from the current primary residence. Many a person would like to purchase here for retirement. Only thing is they come and look, but wait to buy till actual retirement. But wait!?! This way you can, buy here NOW, utilizing an equity line of credit off your current home as the down payment collateral from which to do a reverse mortgage, being able to afford an even nicer residence here sooner while prices are lower. Then wait till prices go up and then cash out your existing home when prices are higher and come here to retire in style. Buy when prices are low in one place and sell in the other when they are higher. NO PAYMENTS to worry or fuss over makes it possible.
Getting into the way actual amortization schedules work is tedious at best. The links provided above and below can delve you into the questions that cut to the chase involving how you compare options, which is crucial in this education. We all are paying more for our houses the conventional way, we recognize, like twice or three times over. Age benefits involving playing the insurance game of when people die, cashing in on the equity involved in our seniors homes, can offset the typical conventional loan requirements held in "MAKING PAYMENTS" to be made to suit only the working class.
This model of reverse mortgages has actually been around a long time with its historical origination roots guaranteeing the "principals" and "owners" of homes security, should the home be ascertained to be worth less than what was owed on it (if I heard right in my class). At least, we know that a prime benefit of a reverse mortgage is that if the home does not appreciate in value and the survivor in the reverse mortgage home continues to live, the longer they live, the sweeter the deal becomes for them with no payments and no interest compensation for the Lender in terms of appreciation. Reverse mortgages are "non-recourse" loans. The lender has no recourse except to the home. For more in depth information feel free to visit: http://www.aarp.org/money/revmort/
Steve Stout with SGI mortgage at 435-467-1090 has a good knowledge and one of the best margins on the interest rates and competitiveness on up front costs to offer. Give him a call for free counseling regarding them.