Reverse mortgage options: one from column A, one from column B

September 16th, 2010

According to the U.S. Census Bureau in 2008 approximately 23.8 million homes were owned free and clear, i.e. with no mortgage, constituting 32 percent of total U.S. residences. The overwhelming majority of these non-mortgage paying owners are over the age of 62. That age happens to be the minimum age requirement in order to qualify for a reverse mortgage.

Benefits of reverse mortgage

Many of our more mature homeowners have been using mortgage calculators to determine if it makes sense to refinance their homes to help cover the rising costs of health care, supplement retirement income or pay off debt that has accumulated over the years. Unfortunately while a refinance calculator can give you a monthly payment based upon pulling equity out of your home, it cannot qualify you based on your retirement income.

The two primary benefits of reverse mortgages are there is no income qualifying to obtain the mortgage and there is no monthly payment to the lender once you close the loan.

Proceeds from reverse mortgages are somewhat reminiscent of the menus years ago in Chinese restaurants where your family would pick an item from Column A, one from Column B and so on. Here is the menu of options for proceeds should you or a family member be considering a reverse mortgage.

Column A: cash at closing

With a reverse mortgage you have the option of obtaining all of your available proceeds at the time of closing, much like a traditional mortgage refinance you can explore with a refinance calculator. Unlike a traditional refinance however you would have no monthly payment to make to the lender for the proceeds. You may use this option to pay off any existing mortgage on the property and obtain the remainder of any available funds in cash at closing or through one of the other options. This is the option most typically used if you are using reverse mortgage to purchase a new home.

Column B: equity line

An equity line behaves a lot like a credit card. You have an available credit limit that you can access whenever you want. You may access part of the available balance at any time or at some time in the future the full amount available. The interest that will accumulate on your reverse mortgage principal will only be on the funds you have utilized, no interest is charged on any unused portions of the equity line.

Column C: monthly payment

An annuity is an investment that pays you a certain amount every month or quarter, reverse mortgages have a similar funding option. If your monthly obligations for medical care, prescriptions, property taxes etc. are $750 per month, you may choose to receive a monthly payment from your reverse mortgage lender to cover those expenses.

Prior to closing you can decide to receive the same monthly payment for the life of the mortgage, or receive a set amount for a certain period of years. This gives you even more flexibility with your reverse mortgage proceeds and monthly budget.

Customize your reverse mortgage

A typical mortgage refinance requires you to take all the proceeds from your mortgage at closing, or if you are funding a Home Equity Line of Credit your only option is to obtain proceeds from your Equity Line. Mortgage calculators are set to show you the proceeds and payments for a fixed mortgage amount and payment. reverse mortgages offer you many options to access your equity, and you are not limited to just one option.

If you wish you can access some equity using Option A and pay off an existing mortgage or other debt and have the remainder of your reverse mortgage proceeds available using Option B, an equity line. Or perhaps you wish to have a set monthly payment using Option C with the annuity type payment and reserve the balance on an equity line. Or if it suits your needs close your reverse mortgage with some cash at closing, a small payment to you monthly and reserve the remainder of your available funds with an equity line.

Reverse mortgages provide tremendous flexibility for you or a family member who may qualify. If you are over 62 years of age, have equity in your home and using traditional mortgage calculators show that you may not be able to achieve your financial objectives take a look at the options available through a reverse mortgage.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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