Reverse Mortgages

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Are you a potential client for a reverse mortgage?

Don’t know what a reverse mortgage is? You’re not alone. A reverse mortgage is a relatively new product designed for people over 62. It has only been available to Texans since 2001. A reverse mortgage is a way to tap into the equity in your home and provide you with the money you want. It was originally designed for families who are real estate rich but cash poor. But, you don’t have to be cash poor to take advantage of a reverse mortgage.

How does a reverse mortgage work?

Individuals over 62 years of age can obtain a loan for approximately 40% – 70% of the appraised value of their home. Past or present credit problems are never an issue, as the senior never has to pay the loan back in their lifetime. The lender provides money to the senior in the form of a loan. The senior makes no payments. The loan only becomes due and payable when the last surviving spouse dies or moves permanently out of the home.

Are there restrictions on what I can use the money for?

There are no restrictions on the use of the money. You can use it to pay for daily living expenses or a dream vacation. You can improve your lifestyle or buy a car or finance a grandchild’s college education. The money is yours to be used as you please.

How do I get the money?

It’s kind of like the lottery. You can opt for a lump sum payment, monthly payments, or a combination of the two.

When is the loan repaid?

The loan becomes due and payable when the last surviving spouse dies or moves permanently out of the home. You can live in a nursing home or similar facility for up to one year before your loan will have to be repaid.

How is the loan repaid?

The heirs can sell the home and pay off the loan with the proceeds of the home sale. The original loan amount plus the accrued interest is all that is owed.

What if the loan amount exceeds the value of the property when I die? Are my heirs stuck with the debt?

No. The reverse mortgage is “non-recourse loan”. Sorry for the technical terminology. It simply means that the bank can never come after any person or estate for repayment of the loan. This is rarely a concern, as most home values will appreciate over time.

OK. But what if the loan amount exceeds the value of my property while I’m still alive? Can I be forced to move out?

Not as long as you or your surviving spouse continues to live in the home. You cannot be asked to pay back the loan, sell the home or move out. Again, this is rarely a concern, as most home values will appreciate over time.

What if I have cancer? Is a physical required? Do I have to be in good health?

No. This is a loan against the real property. Your health, either physically or fiscally is irrelevant. You can have good income or no income at all. You can have good credit or bad credit. You can have a life expectancy of 63 or 110. Remember, you are not expected to pay back this loan.

What if I already have a loan? Do I have to own my home free and clear?

No. In fact, you can use the proceeds from your reverse mortgage to pay off an existing loan to eliminate your current monthly mortgage payments. A reverse mortgage can be a part of a sophisticated retirement plan.

Do I have to be poor to qualify for a reverse mortgage?

No. It is true that the reverse mortgage was originally designed help cash strapped seniors retain their lifestyle while allowing them to stay in their existing homes. Many cash poor seniors have taken advantage of this product to enhance their lifestyle during their remaining years. On the other hand, a reverse mortgage can be a part of a highly sophisticated retirement plan.

Does the bank own my home?

No. You retain ownership of your home.

What if I, or my heirs want to sell my home after I have gotten a reverse mortgage?

No problem. The outstanding balance on your reverse mortgage will have to be paid from the proceeds of the sale of your home. You or your estate will receive any proceeds in excess of the loan balance.

I’m still confused. How about an example?

Sure. Let’s assume you are 62 or above. You have owned your home for twenty-three years and it’s currently worth $230,000. Your current loan balance is $34,000 with a monthly payment of $550.

Let’s assume you qualify for a 50% reverse mortgage. That would be a $115,000 loan minus the $34,000 currently owed. You would receive $81,000 cash. You could get that money in one lump-sum payment or you could get monthly payments or you could get a combination of a lump-sum payment and monthly payments.

So, you no longer have to make the $550 monthly mortgage payments because your existing mortgage is paid off when you get the reverse mortgage and you now have $81,000 to spend as you wish with no controls or restrictions.

No payment is required during your lifetime as long as you continue to occupy your home. Upon your death, the mortgage must be paid. Typically, the home has gone up in value and your heirs can easily retire the loan when they liquidate the estate.

It’s really that simple.

OK, Brubaker, you are an appraiser, not a banker. Why are you using space on your website to provide information of reverse mortgages?

It’s simple. Like many Americans, I’m a baby boomer. I was born in 1955. While retirement for me is many years away, I am beginning to look at my financial options.

Reverse mortgages have only been available to Texans since 2001. A reverse mortgage is a great financial product that offers new options to many of our senior citizens. I wish they were available to my parents when they could have taken advantage of them.

This seems too good to be true. Should every senior over the age of 62 go out and get a reverse mortgage?

No. Everyone’s individual financial situation is different. A reverse mortgage is a powerful tool that should be researched and considered as part of a retirement or estate plan.

If you want more information, let us put you in touch with an ethical and knowledgeable lender who can answer your specific questions.

713-464-4666

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Mike Brubaker