Reverse Mortgage Guide

Case Study 7: Reverse Mortgage Can Provide Funds For Home Improvement

admin — Thu, 15 Oct 2009 21:12:48 +0000

Problem: A 79 year old husband and his 72 year old wife bought their retirement home in Arizona and have lived there for 9 years. Their combined income is $24,000 annually from Social Security and pension benefits. This is sufficient income to cover their expenses and a few extras, but now the house needs some major work. The air conditioning needs to be replaced and there is a major plumbing problem involving re-piping the house. Their credit is average but they do not like the prospect of incurring additional credit card debt and the extra monthly payments.

Solution: With a reverse mortgage, they would be able to receive the money they needed without incurring additional payments. Their $370,000 home could generate a benefit amount of $165,000 to pay for their repairs.

Result: The money from the reverse mortgage would allow them to pay for their repairs, take a cruise to Hawaii and leave $110,000 in their line of credit for future emergencies.

Case Study 6: Reverse Mortgage Can Provide Help For Adult Son

admin — Thu, 15 Oct 2009 21:11:22 +0000

Problem: Mr. & Mrs. Anderson live in Maryland and his 76 year old mother lives in the house he grew up in St. Louis. As a long distance caregiver, he visits as often as possible between business trips and vacations to help his mother maintain her older home. She receives a modest income from Social Security and her CD’s. Recently, he has been sending her $500 a month to help out with the increased health care costs but he can’t afford to replace her leaky roof. Now, the Anderson daughter has been accepted to a university out of state and he is faced with tuition expenses for his own family. He feels caught in the middle trying to care for all of his family members. His mother owns her home free and clear and although she tells him she wants to leave it to him, he would prefer that she live comfortably and not have to cut back on essentials.

Solution: A reverse mortgage on his mother’s home could provide monthly income for his mother and pay for the needed repairs for the home. With a reverse mortgage, her $260,000 home could generate $136,000 in total benefit or a monthly income of $925.

Result: The additional income would allow his mother to pay for her medication and have a new roof installed in her home. The Andersons would have the comfort of knowing that his mother is living comfortably in her home and meeting day-to-day living expenses. In addition, they could now apply the $500 a month he previously sent to his mother towards their daughter’s college expenses.

Case Study 5: Reverse Mortgage Could Help Handle Medical Expenses

admin — Thu, 15 Oct 2009 21:10:09 +0000

Problem: A couple in their mid-seventies is enjoying their retirement, when unexpectedly the husband suffers a major stroke. Fortunately, he survives but requires very costly 24-hour in-home care. With little extra in their savings, his wife faces the possibility of having to put her husband in a skilled nursing facility or being forced to spend down their savings to qualify for Medicaid.

Solution: Using a reverse mortgage, they could access the equity from their $700,000 home. They could convert this equity into $95,000 per year of tax-free cash, without assuming payments or giving up their home.

Result: From a line of credit, the wife would be able to pay the $4,500 a month for in-home care and would not have to sell their home or put her husband in a skilled nursing facility.

Case Study 4: Reverse Mortgage Can Provide Extra Needed Income

admin — Thu, 15 Oct 2009 20:45:01 +0000

Problem: A 70 year old widow has a $13,000 annual income from Social Security and pension benefits. Although this was sufficient income initially, over the years unexpected expenses have caused her to cut back on some essentials and pay for other items on credit cards. She would like to pay off her credit card bills that have grown due to her income not meeting her monthly expenses.

Solution: With a reverse mortgage, she would be able to receive additional monthly income without incurring additional mortgage payments or putting her house on the market. Her $400,000 home could generate a total benefit of $265,908 resulting in a monthly income of $1,488.

Result: The additional income would allow her to pay off her credit cards and have, for example, new carpet installed in her home. She would even be able to afford to visit her grandchildren across the country.

Case Study 3: Home Value Is Less Than Loan Balance

admin — Thu, 15 Oct 2009 20:40:51 +0000

An appraiser determined that the Jones home is valued at $350,000. The Jones children are only responsible for paying the home value of $350,000, less any home-selling expenses.

The bank takes a loss of $45,000 ($395,000 minus $350,000).

Case Study 2: Home Value Is More Than Loan Balance

admin — Thu, 15 Oct 2009 20:39:54 +0000

Mr. Jones passes away after 15 years and his widow continues to live in their home without having to repay the loan balance. Five years later, she passes away, 20 years after

originally obtaining the reverse mortgage. The balance – principal plus interest – is now $395,000. Their children decide to sell the home. Their home appreciated and was

appraised at $550,000. The bank is paid the full loan balance of $395,000.Their children keep the remaining $155,000 ($550,000 minus $395,000), less home-selling expenses.

Case Study 1: Living More Comfortably

admin — Thu, 15 Oct 2009 20:38:23 +0000

With a home value of $400,000 and existing mortgage debt of $50,000, Mr. & Mrs. Jones had $350,000 of equity in their home. Based on that amount, their ages, the property appraisal value, and current interest rates, it was determined that they qualified for a $190,000 loan.

Here’s how they chose to use their funds:

$50,000 paid off their mortgage balance, eliminating their monthly mortgage payment
$7,000 was used for fees and closing costs, so they would have no out-of-pocket costs
$15,000 was used to remodel their home
$10,000 for medical care
$1,500 to visit family
They kept $106,500 available for future use and to draw upon from time to time.

Thanks to their reverse mortgage, Mr. & Mrs. Jones enjoyed a more comfortable retirement because they were able to cover their expenses and stay in their home.

What Happens To My Home?

admin — Thu, 15 Oct 2009 20:31:40 +0000

Nothing happens to your home — you remain the owner for as long as you live there, and you cannot be forced to move. Unlike a traditional mortgage, however, your balance cannot exceed the value of your home when you sell it. So no matter how much money you receive through your reverse mortgage, you cannot owe more than your home is worth. Having that assurance is important. After all, you’ve put a lot of money into your home, and you should have control over how to take it out.

There are no income, employment or credit qualifying restrictions.
Maximum loan amount is based on age, where borrower lives and the value of the home. The amount owed cannot exceed property value, so a reverse mortgage cannot cause you to lose your home.
You do not need to repay the loan as long as you or one of the borrowers continue to live in the house, keep the taxes current and maintain the property to FHA standards.

As long as all property tax, insurance and maintenance requirements are met:

You cannot owe more than the value of the home.
You retain title to the property.
You receive payments instead of making them.

Am I Eligible For a Reverse Mortgage?

admin — Thu, 15 Oct 2009 20:29:05 +0000

In order to apply for a reverse mortgage, there are no credit, employment, down payment or income requirements. Eligibility, therefore, is simplified as follows:

1. At least one homeowner must be 62 years old or older and occupy the property as their primary residence. If another younger person less than 62 lives in the home, he/she cannot be listed on the title.

2. The property may be owned free and clear or have an existing mortgage balance.

3. The home must meet minimum Housing and Urban Development (HUD) property standards. If not, some repairs may be necessary with some of the reverse mortgage money.

4. Single-family homes, townhouses, condominiums, manufactured homes built after June 1976, multi-family homes, planned unit developments (PUDs) and co-ops may be eligible. Some properties, however, are excluded such as mobile homes, motor homes, house boats, yachts, multi-families with more than four units, manufactured homes built before June 1976 and timeshares.

Reverse Mortgages vs Traditional Refinance Loans

admin — Wed, 14 Oct 2009 20:58:40 +0000

Traditional refinance loans mean that the homeowner borrows a large amount of money and makes monthly payments. As payments are made, the loan balance gets smaller and the equity grows.

With a reverse mortgage, the homeowner borrows small amounts – monthly or at other intervals through a line of credit. Over the course of time, the loan balance gets larger, and equity gets smaller. The balance due can come from home sale proceeds or from other resources, such as savings, insurance, or possibly applying for a new mortgage. There is no requirement that the home be sold, only that the loan be repaid.

Flexible Access to Extra Income

Reverse mortgages allow borrowers to obtain loan proceeds:

in a lump sum to cover large expenses
in monthly installments to supplement income
as a line of credit to draw on as necessary

There is even a choice for an immediate advance of funds. And borrowers can change funds-distribution plans as many times as they wish.