Benefits of a Reverse Mortgage
Reverse Mortgage Solutions
Types of Reverse Mortgages
What is a Home Equity Conversion Mortgage?
For wealthier homeowners, a Home Equity Conversion Mortgage (HECM) provides a tax-free source of capital that can be used for large ticket expenditures like buying an RV, purchasing a vacation or rental home, or helping a child or relative start a business. Compared to the tax-consequences of drawing money from a taxable retirement account, the outcomes and benefits of a reverse mortgage are often better with a Home Equity Conversion Mortgage.
Purchasing a Home Using a Home Equity Conversion Mortgage
One of the benefits of a reverse mortgage is the ability to purchase a home. Often used when downsizing or relocating, this strategy preserves liquid funds that would otherwise become illiquid when used to buy the new house. Instead, the reverse mortgage for seniors would cover half of the intended purchase price but accomplish the same goal of no required monthly payments. Using a Home Equity Conversion Mortgage doubles the buying power of whatever funds would be used to pay cash. For example, someone who has $200,000 to purchase a home can now look at houses that are priced $400,000.
Proprietary Reverse Mortgage
If you are a homeowner that has a high-value property and are looking to gain access to a larger amount of equity, an FHA Home Equity Conversion Mortgage may not be the optimal choice for you. Instead, we recommend a proprietary reverse mortgage for seniors. Proprietary Reverse Mortgages are backed by private lending companies that specifically develop these loans. These types of loans are not insured by the FHA and do not require an insurance premium. There are, however, some requirements associated with the HECM regulations. The Proprietary Reverse Mortgage differs from the Home Equity Conversion Mortgage because the loan does not offer many options of disbursement. The funds are most often available in a lump sum after the closing process has been completed. In some states, a credit line is now offered. If you are interested in learning more about the various types of reverse mortgages and the benefits of reverse mortgage loans, connect with us today!
Advantages of Purchasing a Home With a Reverse Mortgage
Leveraging the use of a Home Equity Conversion Mortgage during the process of downsizing or relocating to a new home can benefit your financial picture for the rest of your retirement. How can you utilize the benefits of reverse mortgages and purchase a home in places like Reno? The first step towards your plan is to get in touch with a Certified Reverse Mortgage Professional®, like Chris Handy. As a local Reno Certified Reverse Mortgage Professional®, he will help you thoroughly understand what a Home Equity Conversion Mortgage. Remember, a Home Equity Conversion Mortgage is simply a reverse mortgage for seniors with no required payments. The senior qualifies for a certain % of the home’s value for this loan. The same method can be applied to a home purchase. Reverse mortgage lenders will provide a percentage of the home’s value, and the buyer brings in the rest in the form of a down payment.
- Increase your buying power. Homebuyers often pay cash with the goal of having no mandatory mortgage payments. If a home buyer has $300,000 maximum to pay towards a new home, they might be able to look at homes that are $600,000+ and still accomplish that same goal of no monthly payments.
- Save cash and keep it liquid. That same buyer may purchase a home for $300,000. But instead of spending all their liquid cash to avoid mortgage payments. They may have to only put down a fraction of this amount and keep the rest liquid in an investment account to access during the remainder of their retirement.
- Payments made may be withdrawn later with growth. Using the credit line option on a purchase loan, payments are not mandatory but may be made. Any payments applied to the loan balance will also be available for withdrawal via a growing credit line. The amount of growth is the same as the interest rate on the HECM. For example, a homeowner makes a payment of $20,000 during a year in which interest rates are 5%. In 12 months, there would be $21,000 available to drawback out of the reverse mortgage if the homeowner so desires. Payments stay liquid.
- The amount of down payment required is a formula based on the age of the youngest homebuyer, current interest rates, the home’s purchase price, and the closing costs that are customary for the area.
- Keep in mind that even when you use reverse mortgage lenders in Reno, you as the titled owner are still required to pay taxes, insurance, and any upkeep on the home (don’t let it fall into disrepair).
Let’s look at a scenario. Jim and Rachel have decided to relocate and downsize from their 4-bedroom family home. They have $400,000 from the sale of their previous residence. They initially intended to pay cash or maybe take out a small mortgage if they find a property that they like for more than $400,000.
After deciding to utilize a Home Equity Conversion Mortgage purchase, they find a home for $550,000. They put $200,000 down and finance the other $250,000 through reverse mortgage lenders. At this point, payments were optional, and they invested the remaining $200,000 from the sale of their previous home with their financial advisor. They decide to pay $600 per month while their finances were strong, and they had two incomes. After 10-years, Jim, unfortunately, passed away. This cut the household income for Rachel, but the payments they made plus growth left Rachel $101,000 on a credit line to drawback out tax-free as she needed.