Should You Pay Of Your Traditional Mortgage With A Reverse Mortgage?

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonA recently released university report by the Michigan Retirement Research Center and funded by the Social Security Administration showed that 55% of those utilizing a reverse mortgage are using some of the proceeds to pay off a traditional mortgage.

So, when is this a good strategy?

1.) They’re living in a house they can’t afford

When many older adults reach retirement, they have to figure out out how to live on a fixed income and how to make their other retirement assets last for what is often decades.  Tapping into a reverse mortgage will both eliminate the weight of the mortgage payment, and often even allow extra funds to use throughout the remainder of their lives.

2.) They want to purchase a different home

It’s not uncommon for retirees to purchase a home in retirement.  But few know they can do this with a reverse mortgage instead of a conventional one. This allows buyers to either preserve assets and income, or purchase a home that would typically be out of their price range.  Click here to learn more about the Reverse Mortgage for Purchase program.

3.)  They don’t want to interrupt performing assets

For those with retirement investments that are doing well, drawing from these to make mortgage payments could be a bad move.  Using a reverse mortgage to eliminate mortgage payments can be a win-win in the long run.

Reverse mortgages use the equity in your home to allow access to cash through monthly payments, a lump sum, or a line of credit while living mortgage payment free.  The borrower and the home must meet certain qualifications, such as age (62 or older), and HUD’s  home eligibility requirements, and they must also continue to pay and maintain certain responsibilities such as property taxes and homeowners insurance.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for yo

Why The Reverse Mortgage Line of Credit Is So Popular in Seattle, WA

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonThe HECM Reverse Mortgage Line of Credit is still relatively new, and to this day many within the financial and retirement industries haven’t fully grasped how it works.  Well, they need to get on board because consumers are interested – and they should be.  Here’s why..

First, what is a line of credit?  Simply put, a line of credit are funds available to you through a financial institution that you can access as needed, or not at all if the need doesn’t arise.  Interest is not acquired if the funds are not used.  This makes line of credit options excellent safety nets, especially for the purpose of creative retirement strategy.

When looking at a HECM Reverse Mortgage Line of Credit, the two are obviously intertwined, meaning the qualification requirements for any reverse mortgage still apply.  These are: age 62 and over, using your primary residence for the loan, this home must meet HUD’s guidelines and needs to be either paid off or have substantial equity, and the borrower must have the financial capability to continue to pay homeowners insurance, property taxes, and the like. Because there are various options to receive the payout from a reverse mortgage, the line of credit is only one of them.

When you have a reverse mortgage line of credit, you have money that is available to you — but you only accrue interest on the money you withdraw.  This means the reverse mortgage line of credit can act as an excellent back up source of funds or can be used for retirement fun, whether it be vacation, spoiling grandchildren, or knowing you have the funds available when you’re ready to take on new ventures.

There are other benefits though.  This line of credit is pretty astounding beyond just being a safety net.

Growth: Not only are you not paying interest, but your untouched reverse mortgage line of credit can grow in value. Money in a reverse mortgage line of credit grows at the same rate as the interest rate on the loan PLUS 1.25% monthly.  So, if the interest rate on your reverse mortgage is 2.50%, then your line of credit will grow at 3.75% (2.50% + 1.25%).

Unique: This growth is unique to reverse mortgage lines of credit — a HELOC for example does not grow.

Hedge Against Falling House Prices: The growth in a reverse mortgage line of credit is guaranteed — without withdrawals, your line of credit is guaranteed to grow.  This means you lock in the current value of your home without taking out an interest acruing loan.

Pretty great, isn’t it?

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.

Managing Debt Burden with Reverse Mortgage as HELOC Loans Reset

Reverse Mortgage Seattle Lynnwood Edmonds Shoreline WashingtonAt the peak of the housing boom in 2005/2006, many people took out HELOC (Home Equity Line of Credit) loans that allowed interest only payments for 10 years. But after that 10 year term is up, everything changes as principal is now added to the interest payments.  Then to add insult to injury, many people are only vaguely aware of what this means.  They had assumed the equity in their home would continue to grow and planned to sell before this loan was even due, along with various other scenarios based on the assumption the housing market would remain strong.  But as we all know, in 2008 everything changed.

Between December 2014 and March 2015, the default rate on HELOC loans jumped from 0.5% to 1.9% – potentially tripling the HELOC loans in trouble.  Another large amount of loans have reset in 2016, leaving many unprepared homeowners with new debt.  For senior homeowners, a reverse mortgage can help.

To obtain a reverse mortgage the borrower(s) must be aged 62 and over, live in their primary residence they’ll be wanting to loan on, and have at least some equity in the home.  They CAN have a mortgage or a HELOC on the home, and still be able to get a reverse mortgage.  Some of the funds would need to be used to take care of these existing loans – but once that is done, the borrower will have access to the remaining funds to use as they see fit and they will always live mortgage and loan payment free.

Here’s a how a Reverse Mortgage can help with a HELOC:

Scenario 1 – Homeowner has existing HELOC that has reset to include principal as well as interest.  Because the HELOC was obtained 10 years ago, before retirement, income has drastically changed and the borrowers are now living on a much tighter budget – that did not include this reset.  

Solution 1 – By exploring the reverse mortgage idea, the homeowner finds they can completely eliminate the HELOC and convert the additional equity in the home into cash via a reverse mortgage line of credit or monthly installments – all while living loan and mortgage payment free.

Scenario 2 – Homeowner has a HELOC that is about to reset on a vacation home, while their primary residence is nearly paid off.  

Solution 2 – By obtaining a reverse mortgage on their primary residence, they have the liquid funds available to pay off the HELOC on the second home without acquiring a payment on the primary home.  And by using a reverse mortgage line of credit, they have created a nest egg for use now or in the future.

Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington.  Contact Janis and learn if reverse mortgage is right for you.