What are the benefits of a reverse mortgage? | Reverse Mortgage
Here are six beneficial reasons to use a reverse mortgage.
A reverse mortgage is a loan that allows homeowners over 62 to borrow money from the equity in their home. It can be used for anything, but it’s most commonly used as a retirement planning or income resource. The new guidelines for reverse mortgages make the loan much safer and beneficial for homeowners. The new reverse mortgage allows borrowers to refinance their existing mortgage into a new reverse mortgage and eliminate monthly mortgage payments. They can then take the money they were paying for their mortgage and use it to invest, pay into a catchup IRA, or do renovations to their home.
The New Guidelines For Reverse Mortgages Make The Loan Much Safer And Beneficial For Borrowers.
1. Reverse mortgages are a way to get access to your home equity without having to sell your house. You can even buy a home with the New Reverse Mortgage. More on that here.
You don’t have to own your home free and clear to qualify for a reverse mortgage. All you need is substantial equity in your home, which means the value of your home minus any outstanding mortgages on it.
The new reverse mortgage allows borrowers to refinance their existing mortgage into a new reverse mortgage and eliminate monthly mortgage payments. You still must pay the taxes and insurance when due. You can make any payment you want on the new Reverse Mortgage or you can make no mortgage payment at all. The choice to make a payment is completely in your control.
2. You can use the money from your reverse mortgage for whatever you want.
You can use the money to improve your personal wealth by paying off debt, supplementing your retirement savings, supplementing your retirement income, or improving your home with renovations. The choice is completely in your control and the money is tax-free.
The reverse mortgage can also help you defer taking social security which could result in thousands more dollars per month once retired. You can see how much more you can collect by waiting until you are 70 here.
You could also choose to use your reverse mortgage line of credit instead of withdrawing from your interest-earning or taxable withdrawal retirement accounts. You’ll have access to cash out each year until you have exhausted your available reverse mortgage equity line – without having to pay taxes on those funds. This could allow you to extend your available cash for many years or your children.
3. The interest rate can be lower than other mortgages and they are much easier to qualify for.
At the time of this posting, Reverse mortgage rates are in the 1’s and 2’s. Because of these historically low rates and high appreciation rates, most borrowers are still gaining equity even without making mortgage interest payments.
Qualifying for a reverse mortgage is much easier than for a conventional mortgage. Since no mortgage payment is required on the new reverse mortgage, the debt level is less than a conventional mortgage. The debt ratio is different with a reverse mortgage and a residual income is required instead of maximum debt to income. If the residual income requirement is not met, the mortgage will be denied. Unlike a conventional mortgage, credit scores are not considered but rather the last 24 months of payment history. Perfect pay history is not required but serious derogatory payment history may require the borrower to set up a Loan Escrow Set Aside account for taxes and insurance.
4. If you’re 62 years old or older then it’s possible that you could qualify for a reverse mortgage even if you have an existing traditional mortgage
Many financial planners agree that, for many borrowers, retiring with a traditional mortgage can harm one’s ability to maintain retirement saving long term. By refinancing an existing traditional mortgage into a reverse mortgage, one can increase cash flow and prolong retirement savings. Just think what you could do with an extra $10,777 a year or $161,655 if you have 15 years left to pay (typical principal and interest payment for a $200,000 mortgage).
5. When you select the most popular FHA insured reverse mortgage option, you may get access to a growing line of credit.
One great advantage that the line of credit has over other programs is its capacity for growth. Unlike a traditional fixed-rate reverse mortgage, in which the principal available limit (how much money you can access) is withdrawn in a lump sum immediately after the loan’s closing, the line of credit offers a more flexible long-term safety net. Like other reverse mortgage products, the reverse mortgage line of credit converts your home’s equity into usable funds, but unlike the lump sum, these proceeds may appreciate over time.
As long as the funds in a line of credit go untouched, they may grow according to an adjustable rate. You can withdraw whatever you need, and the remaining sum in your line will continue to grow. Let’s look at an example of a $200,000 available principal limit. If you use $100,000 from that sum to pay off your mortgage and various other expenses, the remaining $100,000 will grow at the rate charged on the loan combined with an additional .50% from the mortgage insurance premium. That is why we recommend every homeowner who is 62 to consider getting a reverse mortgage line of credit. We also recommend borrowers refrain from withdrawing funds for as long as possible (if they can) so that you will get the greatest amount of growth. However, keep in mind that this growth rate is not “interest,” although the concepts may appear similar.
An untapped line of credit will grow at this rate and the money will compound gradually, thus giving you an increasing amount of growth as your line of credit grows larger and larger. The growth rate itself is determined based on three separate factors. The first is the current index value, the second is the margin, and the third is the annual mortgage insurance premium that is received by the Federal Housing Administration. Even though the line of credit uses an adjustable-rate that may change over time, it’s helpful to know that the margin itself (a component of the total rate) is a fixed rate that will remain constant throughout the life of the loan, meaning that the loan will always continue to grow, if only marginally. If you pay down on your reverse mortgage obtained with a line of credit, the line of credit will be replenished and will continue to grow until utilized.
How Growth Affects You
So, how does the line of credit growth rate affect your personal finances? Well, for one, the growth rate isn’t tied to your home’s value, it’s tied to the index, which is an international standard for interest rates. If your home decreases in value due to a housing market slump, your line’s growth rate may not fall because it isn’t directly connected to the housing market.
Additionally, the compounding growth of the line of credit encourages particular spending habits, or rather, an absence of spending habits. When getting a reverse mortgage line of credit, the optimal strategy is to spend as little money as possible. The larger the sum, the larger it will grow, and in some cases, given enough time, the funds may even exceed the home’s value. That’s why, upon getting a line, your best course of action may be to leave the money alone and wait for it to grow if you can. If you give your line of credit the time to grow and flourish into a much larger sum than you’d initially started with, you’ll have a much greater chance of dealing with sudden expenses such as medical bills or surprise repairs. The line of credit is a complex tool, but it’s easy to manage once you understand how it works.
Conversely, if you have funds in the equity markets that are growing are a higher rate than your line of credit, you may opt to not withdraw from your taxable interest-bearing accounts but rather withdraw funds from our reverse line of credit. Check with your financial planner.
6. A reverse mortgage will not affect any government benefits like Social Security or Medicare because they don’t consider this type of loan income when calculating those benefits. You always retain ownership of your home unless you default on the terms of the loan, just like a traditional mortgage.
Reverse mortgages can be a good way to tap into home equity for retirement or other needs. With no monthly payments and the availability of money growing over time, you’re free from any financial pressure while still enjoying your property!
With social security unaffected by obtaining a reverse mortgage loan, nothing is stopping you from using this option as an alternative to traditional loans – which may not have been available at all due to them being too expensive for some people in certain cases. So if it has always been your dream to retire on that lake house but are finding yourself strapped with debt elsewhere instead… then don’t wait another minute before applying now and see how much more affordable life becomes when we know our options first-hand like never before!
Learn more now and get our free Reverse Mortgage Handbook.
Richard Woodward
NMLS 217454
Your Local, Direct, 5 Star Rated Mortgage Lender
Voice/Text: (214) 945-1066
Nexa Mortgage
Licensed by the Texas Department of Savings and Mortgage Lending (SML) Mortgage Banker Registration. Cornerstone First Mortgage is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to buyer and property qualification. Rates and fees are subject to change without notice.
