REVERSE MORTGAGES ARE NOT FOR EVERYONE!
If your home is fully paid off, and
If you have enough cash in the bank, and
If you have a monthly income sufficient to pay all your bills,
YOU DO NOT NEED A REVERSE MORTGAGE!
But
If you are still making mortgage payments, or
If you need to have more cash in the bank, or
If you need more monthly income to live comfortably, or
If you need a lump some of cash to pay off bills, or
Help a child go to college, or pay for a mission, or
Travel or do or buy??
MAYBE A REVERSE MORTGAGE IS FOR YOU!
For some a reverse mortgage is not needed; but
For others a reverse mortgage is a God-send.
Lillie and Jim purchased a home in 2005:
Purchase Price…………$220,000.00
20% Down Payment...........44,000.00
30 Yr. @ 6.82%..............$176,000.00 loan amount
Their principle and interest payment was $1,000.00 a month for 30 years. There are
360 monthly payments in a 30 year loan (12X30=360). In five years they had made 60
payments but still had 300 ($1,000.00) payments left to pay. In other words they had
paid $60,000.00 of the $360000.00 but still had $300,000.00 more to pay. They still had
25 years to go or 300 more $1,000.00 payments.
In the 2008 market crash they lost their investments and retirement income. In August of
2010 Jim’s company downsized and Jim lost his job. They were not able to survive on
their meager social security payments.
Their children volunteered to make the mortgage payments or assume the loan. That was
another 300 ($1,000.00) payments for another 25 years, totaling $300,000.00.
Would it be wise for anyone to pay $1,000.00 a month, for the next 300 months to live in
their home, if they didn’t have to? Consider the costs so far:
Down Payment………………………………...………..$44,000.00
Five years P.I… ………………………..…………….…..60,000.00
Property taxes and insurance ($300.00 X 60 months)……18,000.00
30X40 two story barn and other improvements…….….....36,000.00
Total cash in the home…….............................................$158,000.00
Is it wise to pay another?……………….…….…….….…300,000.00
Total cost plus 25 more years for taxes and insurance.....$458,000.00
After five years they still owed about $161.000.00 with 300 payments left. With no
income they immediately fell behind in their house payments.
WHAT WERE THE OPTIONS?
1. Let the home go into foreclosure
2. Ask the children to make the mortgage payments
3. Put the home on the market and try to sell it.
4. Refinance the home
5. Rent out the home.
6. Get an FHA Reverse Mortgage Loan
CONSIDERING THE 6 OPTIONS!
1. Let the home go into foreclosure.
Unthinkable: lose our $158,000.00 investment, our credit and a place to live.
2. Let the children make our mortgage payments.
Unthinkable: Nice to know they offered and are capable but they have their own
expenses and trials. We do not want to become a financial burden on our children.
3. Put the home on the market and try to sell it.
Unrealistic: The chances of selling a home in this market at a fair price are very
poor. It is also very expensive to sell (8-9%) and we would have only a little cash
after paying off the loan and no place to live.
4. Refinance the home.
Impossible: Must have good income and qualify for the loan because you must make
payments for the duration of the loan. With no job it is impossible to refinance.
5. Rent out the home.
Impractical: The mortgage payments are more than the home could be rented for in
today’s market. And…where would Lillie and Jim live?
6. Get an FHA Reverse Mortgage Loan.
Practical: About 5% in costs; and because there are no mortgage payments we
needed no credit or income. We had already put many thousands of dollars into our
home. This option allowed us to stay in our home as long as we wished with no more
mortgage payments for the rest of our lives. For Lillie and Jim this was the perfect
solution.
Getting a Reverse Mortgage is less expensive than selling a home through a real
estate broker. The Reverse Mortgage costs about 5% of the appraisal; selling with a
broker costs about 8-9%. The seller of real estate has higher sales costs and pays taxes
on profits. The individual getting a reverse mortgage always owns his property, gets to
live in the home with no mortgage payments forever, gets tax free money, and focuses on
savings, not expenses.
HOW MUCH IS THE REVERSE MORTGAGE SAVING?
If Jim and Lillie live 5 years they will save $60,000.00 in mortgage payments.
If Jim and Lillie live 10 years they will save $120,000.00 in mortgage payments.
If they live 15 years they will save $180,000.00 in mortgage payments
If they live 20 years they will save $240,000.00 in mortgage payments.
If they live 25 more years they will save $300,000.00 in mortgage payments.
What Happens In The End?
When does the Reverse Mortgage have to be paid off?
1. When the home is sold.
2. When the home is no longer the primary resident of the senior couple.
3. A year after the death of the last senior living in the property.
4. A year after the last senior abandons the property (i.e. rest home, etc.)
5. If the taxes and insurance are not paid, or the property not kept in repair.
When the time comes to pay off the loan, if the amount of the loan is more than the
property is worth, the children can let the home go back to the lender. The property will
then be placed on the market at a fair market value and sold on the open market as in a
normal real estate sale. Any losses to the lender will be paid by the insurance company
that insured the loan originally. If the heirs are interested in buying the property they can
purchase the property when it is offered for sale on the open market. Regardless of how
much the loan has grown the heirs are not responsible for it.
The reverse mortgage is a non-recourse loan. A non-recourse loan is a loan which
does not allow the mortgage company or anyone else to go to court and get a deficiency
judgment because they lost money on their loan. In other words, if there is a loss of
money when the property is sold and the lender cannot recover the full amount owed
on the mortgage, the lender can not come after the owners to recover any financial loss
whatever.
If the amount of the loan is less than the market value of the property the heirs may
choose to sell the property and make a profit. Or they may elect to refinance the property
and occupy the property themselves. The heirs will never have to pay more than the
property appraises for at the time of the future sale.
The Future Real Estate Market?
How unstable will our economy be in the future? Two or three years ago we could
have sold our properties for much more than they are worth today. Some have struggled
and paid off a home mortgage of $200,000.00 only to see the market sink, buyers drop
off and property values tumble to 50% of what they paid for their property. No one can
predict the future. The home your children inherit from you could be worth a million
dollars or next to nothing, depending upon things completely out of your control, the
economy.
IN SUMMARY: No one can predict what 10 or 20 years will bring. Today you
might be able to get a $100,000.00 reverse mortgage on your home; next year it will be
more or less, depending on the market. Two or three years ago you could have gotten
much more than you can today.
801-277-5100 Legend Financial Services specializes in Reverse Mortgages. Based in Salt Lake City, Utah. Purchase a Home with a Reverse Mortgage. Reverse mortgages can be used to purchase a home. For example, seniors that wish to downsize can sell their existing home, make a large down payment on a smaller home, and finance the rest with a reverse mortgage. Then, no payments will need to be made for life. http://www.legendfinancialservices.com/
Watch a Video at http://www.youtube.com/watch?v=ejzyNK3c2qg
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