By George A. Downey
The post-pandemic historic spike in home prices – a boon to sellers, a challenge to buyers, and a potential blessing to homeowners that want to age in place.
Why it matters
A common fear among aging Americans is running out of money in retirement. Frozen home equity could be a solution, but few understand how. Short of selling or refinancing with added mortgage payments, most are unaware of the advantages a reverse mortgage might provide.
Reverse mortgages unlock equity without monthly payments.
The national average of home equity continues to increase your year-over-year. While the future of home prices may be uncertain, a reverse mortgage may enable eligible homeowners age 62 and older the ability to take advantage of these conditions and possibly lock-in the current value by converting a portion to cash and/or a credit line.
When to consider a reverse mortgage?
Simple answer: When property values are high, and the terms are a good fit for individual needs. The leading program is the U.S. Department of Housing and Urban Development’s Federal Housing Administration-insured Home Equity Conversion Mortgage (HECM) reverse mortgage. HECM advantages are supported by federal insurance and determined by a formula that includes one owner’s age (must be 62 or older), current market value, and current interest rates. Most importantly, the loan terms and amounts are established at closing and remain unaffected by any future economic, financial market, or real estate value declines.
Who should consider a reverse mortgage and why?
Every aging homeowner should consult with a Certified Reverse Mortgage Professional to learn about the potential and determine if one might be a good fit for their needs and circumstances. They are not suitable for everyone. However, if the fit is right, a reverse mortgage can be a remarkable resource that can potentially increase and extend financial security. If it appears to work for you, understand why. If not, why not?
Reverse Mortgage Basics
• Potentially no monthly payment obligations. Voluntary payments are permitted, but not required.
• Credit line growth. The undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed, providing more funds for future needs.
• No maturity date. Repayment not required until no borrower resides in the property.
• Non-recourse loan. No personal liability for borrowers or heirs.
• Borrower obligations (to keep loan in good standing) are limited to:
– Keeping real estate taxes, homeowners insurance, and property charges current
– Providing basic home maintenance
– Continuing occupancy as primary residence
Source Links:
https://www.bankrate.com/home-equity/homeowner-equity-data-and-statistics
https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou
https://www.hud.gov/sites/documents/42351C3HSGH.PDF
https://www.hud.gov/program_offices/housing/sfh/hecm/hecmhome
Eligibility requirements apply. HECM counseling is required. Subject to credit and income approval. You must occupy the residence as your primary home. You must continue to pay for property taxes, insurance payments, homeowners’ association fee, home maintenance costs, and other fees as required. You must have significant cash available for the down payment. The balance of the loan grows over time and interest is charged on the balance. The loan becomes payable when the last borrower on eligible non-borrowing spouse passes away, sells the home, permanently moves out, defaults on taxes, insurance, or maintenance, or otherwise does not comply with the loan terms.
About the Author: George Downey, CRMP (NMLS ID 10239) is the Regional Senior Vice President of The Federal Savings Bank branch located at 100 Grandview Road, Suite 105, Braintree, MA 02184. Contact Mr. Downey at 781-843-5553 / Cell 617-594-3666 / gdowney@thefederalsavingsbank.com, www.thefederalsavingsbank.com/georgedowney
