You live in Chicago, you love the Windy City, but that wind has now started to rattle your bones, especially during the fall and winter months. You used to be able to convince yourself that you enjoyed watching the foliage change and the different styles of clothes you could wear throughout the year. You have paid your mortgage every year, and it is finally paid off. You pull out a map of the United States, and you start looking at places: Seattle? Los Angeles? Miami? How about San Francisco? You should probably look into purchasing a home with a reverse mortgage.
This program allows you to purchase a home with about a 40% down payment approximately. Say you wanted to buy a home in the San Francisco region, where housing prices are notoriously high. You would only need roughly $275,000 to purchase a $500,000 home if you were 62 years of age.
This can be done in a number of manners. Typically one would sell their current home and use the proceeds as the down payment for the new one. Or in some cases, you may already have that down payment amount set aside, you can keep your current home (in Chicago for this example), purchase the home in San Francisco with the reverse mortgage for purchase and live in the bay area for 6-7 months and head back to Chicago for 5-6 months. The only thing you would really need to make sure about is that the home with the conversion mortgage on it has to be your primary residence.
Another option available to you that can secure your financial future is the line of credit option. It is only available on the adjustable rate program and has both some short term and long term benefits. Let’s use the example of you living in Chicago again, you own a home that is worth approximately $300,000 and you are 62 years of age. There is no current mortgage balance on the house and you plan on living there for the rest of your life. In this situation, you would qualify for around $150,000 in the line of credit option.
The huge benefit of the line of credit option is that the amount that is not touched will actually grow by approximately 3.5% each year. After roughly a decade of time and growth, the line of credit has now grown to be around $200,000. The credit line will grow with the house no matter how the economy goes, as it will be based upon the value of the home at the time of the reverse mortgage. If you house is appraised at $300,000, then say 5 years later the economy goes sour and your house becomes worth around $250,000, the line of credit will still grow based on the $300,000 initial valuation. It is one of the easiest ways to really secure your finances for future growth.
Finally, the last solution is to go with a fixed rate product. What the fixed rate product allows you to do is to pull out the proceeds in a simple lump sum. Using the Chicago example as we have done throughout, you own a $300,000, you are 62, and you do not have a mortgage on your home, you could qualify for approximately $150,000 in proceeds. $90,000 of the proceeds would be available to you in the first 12 months, then afterwards the remaining balance of $60,000 would become available. This could be used for a number of things, maybe you need to buy a new car, or you have medical expenses that you know about that could be paid off with the funds. The lump sum option is really only best suited for someone that needs the largest possible payout at one time, and unlike the line of credit option, the amount you are taking will not grow over the years. It is set in stone how much you will receive at the time of the loan closing.
We have looked at three quite different loan options from the reverse for purchase, to the line of credit, and finally the fixed rate lump sum. There is always a solution that is available to you. At One Reverse Mortgage, we strive to help seniors whenever we can, but it would also be in your best interest to have a discussion with you family, or consult a financial planner before making any large financial commitment.