For many older Americans, owning a large house just isn’t necessary anymore.
Maybe you’ve been thinking about finding a smaller house that suits your needs, moving closer to family or retiring in a warmer climate.
If retirement is on your mind, chances are that you might want to free up some of the money you’ve accumulated in your home.
Sometimes, people who want to move and access more of their home equity will downsize. Normally, this requires selling the home with one transaction and purchasing a new home with another. With a traditional mortgage, there will also be monthly mortgage payments in addition to other expenses. Sounds like a hassle.
A Built-In, Two-For-One Kind of Deal
A special type of reverse mortgage allows qualified Americans 62 or older to purchase a new home with no monthly mortgage payments.1 Also known as the Reverse for Purchase or HECM for Purchase, this is a federally insured loan built to help older adults reach their financial goals when buying a new home.
Instead of downsizing (going through multiple transactions and the stress of having new monthly payments), you could buy a new home with one transaction and no monthly mortgage payments. To start, you’ll provide a down payment using your savings or the money from the sale of your current home. This provides enough equity for a reverse mortgage to cover the rest of your new home’s value.
Usually, the down payment will be a little less than half of the new home’s value. This means that if you want to downsize by using a reverse mortgage, you could sell your home and purchase a more modest property for half its value with no monthly mortgage payments. As long as you live in the new home as your primary residence, the reverse mortgage will not come due.1 However, interest will accrue gradually, just like with any other loan.
If you ever choose to sell the home, move out or no longer live there, the reverse mortgage will come due, and the loan will need to be repaid. But, since it’s a federally insured loan, you’ll always be protected, no matter what the loan balance becomes. Even if it exceeds the value of your home, you’ll be able to repay the loan in full by selling the home.
You or your heirs could choose to keep the home by paying either the loan balance or 95% of the appraised value, whichever amount is less.
The Reverse Mortgage Lets You Do Both
Typically, when people compare getting a reverse mortgage to downsizing, they talk as if they have to do either one or the other. But the reverse mortgage is a flexible loan – it lets you purchase a new home while accessing the money in your old home, so there’s nothing stopping you from selling a high-value home and then using your reverse mortgage to buy a smaller home. Doing so allows you to bypass monthly mortgage payments.
In the end, you won’t have to deal with repaying the reverse mortgage until it comes due, thus making it a great tool for downsizing and preparing to settle in for retirement.
To find out more, speak with one of our Licensed Specialists at (800) 401-8114 or explore the benefits of a Reverse For Purchase.
1Homeowner is still responsible for paying property taxes, homeowners insurance and maintenance expenses.