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Reverse Mortgages Unleashed! - Part 2: Utilizing Reverse Mortgages

30.10.23 05:55 PM By gina

Reverse Mortgages: The Secret Weapon for a Comfortable and Secure Future

Reverse Mortgages: The Secret Weapon for a Comfortable and Secure Future
Welcome to our blog post on reverse mortgages! If you're a senior or elderly person looking for a way to secure your future, this article is for you. In this post, we'll explore the benefits of reverse mortgages. Whether you're interested in investing in real estate, paying bills, traveling more, or simply maintaining a good lifestyle as you age, reverse mortgages can provide you with the financial flexibility you need.

It's important to note that reverse mortgages specific requirements may vary. Please consult with a financial advisor or lender to determine your eligibility. Our team uses lenders from Mutual of Omaha as well as Fairway Mortgage companies, both of which have solid reverse mortgage divisions.

Pros and Cons of Reverse Mortgages
1. Financial Flexibility: Reverse mortgages offer you the flexibility to access the equity in your home without having to sell it. You can receive the funds as a lump sum, a line of credit, or as monthly payments.
2. No Monthly Mortgage Payments: Alleviates financial stress and allow you to enjoy your retirement without the burden of regular payments.
3. Stay in Your Home: - Age in Place! Continue living in your home as long as it remains your primary residence, providing you with security and comfort
4. Protection Against Falling Housing Prices: If the value of your home decreases after you take out a reverse mortgage, you won't be required to pay back more than the appraised value of your home at the time of repayment.

1. Accrued Interest: As with any loan, interest accrues on the amount borrowed, therefore, the total amount you owe will increase over time.
2. Repayment Upon Moving or Selling the Home: If you decide to sell your home or move out, the reverse mortgage will need to be repaid. This may include the principal amount borrowed, accrued interest, and any applicable fees.
3. Potential Impact on Inheritance: Taking out a reverse mortgage can reduce the equity in your home, which could potentially impact the inheritance you leave behind for your beneficiaries.
4. Fees and Closing Costs: Reverse mortgages come with fees and closing costs, which can vary depending on the lender and the specific terms of the loan. It's important to carefully review and understand these costs before proceeding.

Reverse Mortgage Explained
Now that we've covered the pros and cons, let's dive deeper into how reverse mortgages work.  

A reverse mortgage is a loan that allows senior homeowners to convert a portion of their home's equity into cash. The loan is repaid when the homeowner sells the home, moves out, or passes away.

There are three main types of reverse mortgages:
Single-Purpose Reverse Mortgage: This type of reverse mortgage is offered by state and local government agencies and nonprofit organizations. It's typically the least expensive option but may have restrictions on how the funds can be used.

Federally Insured Reverse Mortgage: Also known as a Home Equity Conversion Mortgage (HECM), this type of reverse mortgage is insured by the Federal Housing Administration (FHA). It offers the most flexibility in terms of how the funds can be used.

Proprietary Reverse Mortgage: These are private loans backed by the companies that develop them. They often have higher borrowing limits and may be suitable for individuals with higher-value homes.

It's important to fully understand the terms, fees, and repayment options before choosing the type of reverse mortgage that best suits your needs.

Benefits of Reverse Mortgages
Now that you have a solid understanding of reverse mortgages, let's explore the numerous benefits they offer:

1. Financial Freedom
Reverse mortgages provide seniors with the financial freedom to pursue their passions and improve their quality of life without worrying about monthly mortgage payments. Whether it's traveling, pursuing a new hobby, or spoiling grandchildren, a reverse mortgage can provide the funds necessary to make these dreams a reality.

2. Increased Cash Flow
For many seniors, retirement can bring a decrease in income. With a reverse mortgage, you can tap into your home's equity and receive additional cash flow to cover daily expenses, pay medical bills, or maintain your desired lifestyle.

3. Peace of Mind
Knowing that you have access to funds through a reverse mortgage provides peace of mind. You won't have to worry about unexpected expenses or emergencies. Instead, you can rest easy knowing that you have a financial safety net in place.

4. Option to Stay in Your Home - Age in Place
One of the greatest benefits of a reverse mortgage is that you can continue to live in your home as long as it remains your primary residence. This offers stability, familiarity, and a sense of belonging.

5. No Monthly Mortgage Payments
With a reverse mortgage, you can say goodbye to monthly mortgage payments. This can alleviate financial stress and allow you to enjoy your retirement without the burden of regular payments.

6. Flexibility in Repayment
Unlike traditional mortgages, reverse mortgages offer flexibility when it comes to repayment. You can choose to repay the loan when you sell the home, move out, or pass away. This allows you to maintain control over your finances and make decisions that are best for you and your family.

The Following are unique to reverse mortgages, and often not discussed!
7. Housing Market Protection
Reverse mortgages come with a unique protection feature. If the value of your home decreases after you take out a reverse mortgage, you won't be required to pay back more than the appraised value of your home at the time of repayment. This ensures that you're protected from falling housing prices.

8. Legacy Planning
Reverse mortgages can also be used as a part of strategic legacy planning. By accessing the equity in your home, you can create a financial cushion that can be passed down to your children, grandchildren, or beneficiaries when the time comes.

9. Purchase New! Reverse Mortgage Purchases - Downsize, Rightsize
Using a reverse mortgage to purchase a home as a senior is known as a Home Equity Conversion Mortgage for Purchase (HECM for Purchase or H4P). This is a government-insured program specifically designed to help seniors (aged 62 or older) buy a new primary residence without the need for a traditional forward mortgage.
FHA Standards: The property must meet the Federal Housing Administration (FHA) standards, and it must be your primary residence. Vacation homes or investment properties are not eligible under this program.

Down Payment: You'll need to make a down payment on the new home. The exact amount will depend on various factors, including your age, the purchase price of the home, and current interest rates. The reverse mortgage loan covers the remaining portion of the home's purchase price. Often, a senior will sell the current home and use the proceeds of that sale to provide the down payment on the new home. This down payment can be 50-60% of the purchase price of the new home, and will be determined by your loan officer. 

8. Silver Divorces - How a Reverse Mortgage Can Benefit BOTH Parties
Silver divorces are increasing, creating a need for creative allocation of assets. We have seen 1 homeowner obtain a reverse mortgage, give 50% to the other party in the divorce per the divorce decree, and then that 50% is used in the down payment for a HECM for Purchase on the new home. This allows for BOTH parties to avoid having a mortgage payment, and allows for 1 party to remain in their hoe to age in place while the other party can do the same in a new location.

9. Investment Properties
If you are ready to take a leap into investing, you can utilize your reverse mortgage line of credit to buy an investment property, which will generate cash flow and allow you pay back the reverse mortgage line of credit, so you can use it again for another property! This takes careful planning and consideration, plus a higher risk tolerance than many seniors are willing to have. However, if this seems like the right thing for you, connect with a good Realtor or Commercial Real Estate agent who also understands reverse mortgages and what you are wanting to accomplish in building a portfolio. A good recommendation is to look for the CSHP certification (Certified Senior Housing Professional). These real estate professionals understand many aspects of the reverse mortgages and how to utilize them for real estate.

Cons of using a reverse for Investment properties:
Rental Income: The success of your investment property in generating rental income is not guaranteed and depends on market conditions, property management, and other factors. You should carefully assess the potential return on investment.

Heirs and Repayment: When you pass away or move out of your primary residence, the reverse mortgage typically becomes due. If you've used the funds to purchase an investment property, your heirs may need to address the repayment of the loan, which could involve selling one or both properties. It is wise to consult with a financial advisor and also consider additional life insurance just to cover these investments, if you want the properties to remain in the portfolio that goes to your heirs/beneficiaries. 

In Conclusion
Reverse mortgages can be a powerful financial tool for seniors and elderly individuals looking to secure their future and enjoy a comfortable lifestyle. From providing financial freedom and increased cash flow to offering peace of mind and flexibility, reverse mortgages have numerous benefits that can significantly improve your quality of life.

However, it's essential to carefully consider the eligibility requirements, as well as the pros and cons associated with reverse mortgages. Consulting with a financial advisor or lender can help you navigate the various options and make an informed decision that aligns with your unique needs and goals.

Remember, reverse mortgages are designed to be a long-term solution, and it's crucial to understand the implications and responsibilities that come with this financial product. By doing so, you can make the most of your reverse mortgage and enjoy a secure and comfortable future.