Gary’s financial situation was impacted when his wife passed away a year ago. Instead of having income from two Social Security checks, there was only one. Having gone to just one Social Security check he wasn’t able to maintain his lifestyle as he had been accustomed and it was difficult to have enough funds to pay his property taxes. And for awhile he started using a credit card to cover some of his living expenses.
Wanting to stay in his home of many years, Gary contacted me to do a reverse mortgage. A reverse mortgage is a loan with special terms for those 62 and older. The funds available are based on the age of the youngest homeowner, the lessor of the appraised value or FHA lending limit of $625,500 and the Expected Interest Rate of the program chosen; income or credit score qualifications are not used for the interest rate.* Similar to a traditional mortgage, the title stays in the homeowner’s name. The most common, and only reverse mortgage currently available in Minnesota, is HUD’s FHA insured Home Equity Conversion Mortgage (HECM),
The additional benefits Gary liked about the reverse mortgage was he doesn’t have to make monthly mortgage payments and with the flexibility of the adjustable rate program he can receive funds in a lump sum, a line of credit with a growth rate, monthly payments or a combination of those.
In addition, Gary liked the fact that the loan isn’t due until he is no longer in the home as his primary residence or on his 150th birthday and it’s a non-recourse loan which means there is no personal liability when repaying the loan, it is repaid from the property only. For example, if the loan balance is $300,000 when the loan become due and payable but the home can only be sold for $250,000 the borrower or the estate do not have to come up with the $50,000 difference. The loan is generally repaid from the sale of the property when the home is no longer the primary residence of the borrower, usually when they move, die or sell. If the home is sold for more than the loan balance the remaining equity goes to the borrower or the estate.
At closing Gary’s home equity line of credit was paid off so he didn’t have any more monthly mortgage payments. Additionally his property taxes were brought current, he took out some funds to pay some bills that had accumulated. And now he has funds in a line of credit. There is a small amount available under HUD’s limit to 60% in the 1st 12 months with the balance available after the 1st year. Recognizing he is responsible for paying his property taxes, keeping homeowners insurance on the property and maintaining the property, the reverse mortgage provides the funds he’ll need for these responsibilities as well as funds for emergencies and the little things that may come up. Gary’s financial situation has improved and he can maintain his lifestyle going forward.
Think about how a reverse mortgage will make a difference in your life and contact your local originator, one who works with several lenders to be able to offer you all options available and one who will meet with you in person.
*As of April 27, 2015 income and credit are used for the Financial Assessment to determine borrower’s ability and willingness to pay property taxes and insurance into the future.
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