Questions and Answers, Part 3
I was just recently asked by a client whether his parents should get a “Reverse Mortgage”.
The answer-Maybe.
First, what is reverse mortgage? It is real estate loan with unique properties available ONLY to borrowers aged 62 or older. It can be a refinance or a purchase loan. There are no payments required for principal and interest. The borrower must keep current on taxes and other property related fees (HOA, for example), and must live in the home.
At all times, the borrower owns the home, and has the right to sell it or change his financing at any time. So, the question is, why no payments required. Simply, the purpose is to allow seniors to stay in their homes even if their income is not sufficient to cover a conventional loan. Interest is charged, but it is added to the loan balance. The loans require a substantial down payment for purchase, or equity for refinance, so there is almost always equity in the home.
Now, why would you consider this kind of financing:
- Home owned free and clear: example $500,000 value, new loan $300,000. Borrower gets $300,000. Normal payment today would be about $1,344.00/mo. With reverse mortgage NO PAYMENT, and $300,000 cash to use for any purpose.
- Home with $300,000 conventional mortgage: Borrower must pay $1,344.00/mo. Switch to reverse mortgage, borrower never has to make a payment on his loan again.
- Purchase: Borrower may also use the reverse mortgage to purchase a home. Borrower makes a $200,000 down payment , and receives a $300,000 reverse mortgage with no required payment.
- Cash flow concerns: Great example, borrower is considering taking social security early because of cash flow concerns. This will mean a substantially lower Social Security income for the rest of his life. As an alternative, he can refinance his free and clear home, and actually collect a monthly payment of $1,344.00 for the rest of his life (or take the entire $300,000 in cash), and at a later time start collecting a substantially HIGHER Social Security payment
Reverse Mortgages are not for everyone, but they can be an incredible tool to assist homeowners in their later years. We have become experts in reverse mortgages (remember, we are Seniors, too). Please feel free to call on us at any time to discuss this or any other real estate opportunity.
You can reach us at 949-500-6365, Frank@FrankDiLauro.com, or our website, www.FrankDiLauro.com
