So what is a reverse mortgage?
A reverse mortgage is a loan secured against the value of your home. It is designed exclusively for homeowners aged 55 years and older. It enables you to convert up to 55% of your home's value into tax-free cash. The funds from a reverse mortgage can be used for whatever you want - to cover monthly expenses, renovate your home, pay-off debt or travel - there are no limitations! With a reverse mortgage, you maintain ownership of your home and there are no monthly mortgage payments required. That’s right, ABSOLUTELY NO monthly mortgage payments required! Repayment of the loan is only required once you choose to move or sell your home. The interesting part is that the bank will guarantee that the amount you eventually repay will NEVER exceed the fair market value of your home. And if your home goes up in value, well, the appreciation is all yours. All you are required to do is simply maintain your property and pay the taxes and insurance.
There are generally 2 types of reverse mortgages - one is a lump sum cash out and the other is an income supplementary income stream.
The qualification process is super easy. There’s no need for income documents or anything that big banks typically require. The qualifying amount is purely based on the age. The minimum age is 55 and as the age increases, you can borrow more. The max is up to 55%.
Well, how do we set it up?
We’ll need your personal information and information on the property. We’ll need to do an appraisal to assess how much it's worth. Once we know the property value and your age, we can then determine how much you can qualify.
The interest rates are slightly higher than banks and there are fees involved though. Expect interest rates to be about 3-4% higher than big banks and set up fees to be about $2000.
The biggest concern people have is the unpaid interest. Because monthly payments are not required, the interest costs keep going higher and higher and then eventually the interest will be more than the purchase price!
That’s one of the biggest myths for reverse mortgage. For this very reason, the maximum amount someone can borrow is 55% of the home value just so that there’s lots of equity for the interest to accumulate. But also, don’t forget about the price appreciation of the home. The price is also expected to increase year over year so as interest costs increases, your home value also increases as well!
Banks that offer reverse mortgages are so confident that they guarantee that in the event the mortgage is more than the home value, they will cover that loss.
Reverse mortgages are a great option especially for seniors who cannot be qualified at banks because of low pension income. They’re retired and their income is expected to be low. Instead of going to private lending and putting more stress with a large mortgage with a high interest rate, a reverse mortgage is the solution. Seniors no longer need to be concerned about defaulting on their mortgage and can free up cash flow for paying bills and simply enjoying their retirement!
If this is something you or your parents would like to learn more about, please don't hesitate to reach out and ask! We're here to help.