The Many Uses of a Reverse Mortgage
“Aging is an extraordinary process where you become the person you always should have been.” – David Bowie
The complexion of the Reverse Mortgage industry has changed dramatically over the years. The FHA-Insured Reverse Mortgage is no longer considered a rescue device. Our typical borrower today is in their early 60’s, has excellent credit and upper level income.
About half of our clients have a free and clear home and utilize the increasingly popular Reverse Mortgage line of credit. The built in credit line growth rate feature means that the unused portion of the line of credit will grow each year. The other half of our clients are using the Reverse Mortgage to pay off an existing mortgage, freeing up their monthly mortgage payment for other uses.
Even wealthy clients are being advised by their financial planners to look into reverse mortgages as part of their retirement financial planning. The strategy these financial planners suggest is establishing a Reverse Mortgage line of credit to draw on rather than retirement savings in a bear market.
One borrower we worked with recently had very little equity so he is bringing $60,000 to closing in order to pay off an existing mortgage. By doing so, this borrower will not have to make a monthly principal and interest payment for as long as he lives in the home as his primary residence. As always, he will have to continue to pay his property taxes, homeowners insurance, and HOA fees, and maintain the property to FHA standards.
This is becoming more and more common; one couple recently brought $110,000 to the closing table. This, along with the proceeds from their reverse mortgage paid off a substantial existing mortgage. They said that “even laying out $110,000 we will break even on cash flow in under 5 years, and look forward to another 20 years or more after that with no monthly mortgage payment!” Another client we recently met with owns a $1.5 million home in Palm Beach. He has no existing mortgage and is looking to tap into some of the equity he has in his home without the burden of monthly mortgage payments. This particular customer has the option of using an FHA-Insured Reverse Mortgage, or one of the Jumbo Reverse Mortgage programs we have available.
The uses of reverse mortgages are endless! From paying off a home equity line of credit that’s coming due, to closing a loan in 8 days to stop a foreclosure for a customer, to funding a legal settlement, the FHA Home Equity Conversion Mortgage, more commonly known as a Reverse Mortgage, is a great financial planning tool to fund the baby boomer retirement! Every borrower has a unique situation that deserves a thorough evaluation and consultation.
