Recent news features One Reverse Mortgage in the pages of The Wall Street Journal. According to Robyn A. Friedman in “Senior Homeowners Give Reverse Jumbo Mortgages New Life,” these loans, “may be a good fit for older Americans who want to supplement incomes.” In fact, increased cash flow is just one of the benefits that reverse mortgages can provide.
As a flexible financial tool, the reverse mortgage gives many older homeowners a chance to access their home equity and use it however they see fit. In the words of our Chief Executive Officer, Gregg Smith: “Instead of dipping into your retirement savings if you’ve had health care expenses or whatever, you can access the equity in your home.” In other words, you don’t have to cut into other assets when you have access to your home equity.
But, how do you access your home equity with a reverse mortgage?
Reverse Mortgage Basics
The reverse mortgage works like a traditional loan with a few unique twists. As the name implies, it’s a loan that essentially does the opposite of a conventional mortgage. First, if you’re a homeowner 62 or older, you can borrow money based on your home equity (that’s the money you’ve already paid into your home, typically through monthly mortgage payments). Even if you have a current mortgage, you could still qualify. From there, you’re free to use this money however you wish. Most importantly, you won’t have to pay monthly mortgage payments once you get a reverse mortgage.*
Instead of paying back the loan little by little over many years, the loan comes due only after you pass away, sell the home, or live elsewhere for more than 6 months. In most cases, the loan will come due after several years. Once it does, you or your heirs can pay back the balance of the loan by selling the home. Because this is a non-recourse loan, you will never owe more than the value of your home. And, if your home is worth more than the balance on the loan, you can keep what remains to use as you wish.
Most reverse mortgages are known as Home Equity Conversion Mortgages (HECMs). These are federally insured financial products with many safeguards – and limitations. These days, proprietary products such as our Home Equity Loan Optimizer (HELO) are gaining in popularity. The HELO is a jumbo reverse mortgage with a maximum loan limit of $4 million – this far exceeds the HECM’s limit of $726,525. Considering the rising property values in many areas around the country, proprietary reverse mortgages like the HELO have a bright future ahead.
The HELO in Action
The Wall Street Journal story focuses on Peter Detrick, 74, and his wife Kathleen, 73, who closed their HELO for $840,000 on their $2 million home in California. “A jumbo reverse mortgage was perfect for us,” Mr. Detrick said. “It liquefied our assets, yet we could continue to live in and enjoy our house.”
With a portion of his home equity available for use, Detrick intends to use the money on home improvements, travel, and long-term certificates of deposit for safekeeping. Because he can use the money however he sees fit, he’s able to address immediate needs while simultaneously preparing for long-term goals.
Reverse mortgages are all about accessing what you already own. You’ve worked your whole life to pay for your home – it’s about time your home paid you back. Whether you want to take care of urgent needs or settle down for a secure retirement, the reverse mortgage offers many seniors financial freedom.
To learn more about accessing your home equity, call (800) 401-8114 or request your free information kit.