Before we dig any deeper into Reverse Mortgages lets review what we have covered so far. In Part One we found out what a Reverse Mortgage is, what the requirements are for obtaining a Reverse Mortgage, how not to be taken advantage of and using a Reverse Mortgage for the purchase of a home. In Part Two we examined some important questions to ask yourself about your financial health and we looked at some possible ways to use a Reverse Mortgage to your advantage. To aid with understanding how a Reverse Mortgage can work let’s look at a couple of examples.
Using A Reverse Mortgage For A Refinance
John is 77 years old and his wife Mary is 75 years old. They currently live in their $200,000 home that has a remaining balance owed of $75,000. Their current payment is $825 per month and their income is $2,200 per month from Social Security. Upon interviewing John and Mary, their loan officer establishes what their goals are and what they would like to accomplish:
• They want to remain in their home
• They want to have money available for a few repairs on their home
• They want to eliminate their current mortgage thereby increasing their discretionary income
• They want to have funds available in case of an emergency
Based on their age, John and Mary qualify for a Reverse Mortgage in the amount of $142,000. Subtracting the remaining balance owed on their current mortgage along with all the costs associated with closing the loan, John and Mary will have $55,348 available for repairs or emergencies, will never have to make another payment on their home as long as they live there and feel as though they just received an $825 per month raise. In fact they just received that $825 increase by keeping the monthly house payment they were used to making for themselves. SWEET!
Using A Reverse Mortgage For A Purchase
Mr. and Mrs. Smith, aged 77 and 75, are in the process of relocating to Atlanta to be closer to their daughter, son-in-law and their grandson. They have sold their very nice home in Oklahoma and have net proceeds of $200,000. They have asked their Atlanta Buyers Agent to help them find a home close to their daughter for $200,000 or less so that they will not have a mortgage payment. Their daughter happens to live in a very nice area of Gwinnett County and homes in the $200,000 range close by are not common. Fortunately the Smiths were working with a REALTOR who was also educated in the advantages of a Reverse Mortgage. After obtaining all the information and scheduling a consultation for Mr. and Mrs. Smith with a loan officer, it was determined that they would be able to purchase a $400,000 dollar home that kept them in a similar lifestyle that they were accustomed to. They would only have to use $127,000 of their proceeds for their downpayment with the balance of the purchase being financed via a Reverse Mortgage. The Smiths are able to keep part of their proceeds, live in a much nicer home than they anticipated and now can spend more quality time with family.
What To Expect in Part Four
It sounds as though a Reverse Mortgage is the greatest thing since sliced bread and for some that is true. In Part Four I think we should examine some of the pitfalls and downsides of a Reverse Mortgage. So until then…..
{ 1 comment… read it below or add one }
Mack, Thank you so much for taking the time to provide information on Reverse Mortgages. The examples help. People over about age 65 have a major trust factor, and when they truly understand the way it works, I keep hearing “This just seems too good to be true”. Thanks again for your helpful information