Is a reverse mortgage something you should consider? Many seniors can be hesitant about taking out this loan, which can stop them from exploring how it could help them. Family Home Loan Texas has experience serving people who want to know how their home equity can be accessed. We can talk to you about the reverse mortgage process, what you can gain, and the different protections afforded to you. In addition to helping you understand the value of the HECM loan, we can also review what you can gain from Equity Elite and Equity Elite Zero, which can help you receive a larger sum and reduce your closing costs!
Those who lack information on the reverse mortgage process, and what borrowers gain, can let their misunderstandings shape their concerns. While this type of loan is not for all seniors, it can be key to helping many of them remain financially secure and self-sufficient through their retirement years. For a person who plans to stay in their current home, needs help shoring up their retirement savings, and has meaningful equity in their home can use their HECM or Equity Elite funds in many beneficial ways. Whether you seek a lump sum or want to have the amount paid over a set time, we can set you up to see meaningful and lasting value from your loan.
People who misunderstand what reverse mortgages entail can assume that by agreeing to one, they are effectively selling their home. What you actually do is gain advance access to the equity that your property has accumulated since you purchased it. You should know that your deed stays in your name, and the ownership claim fully remains with you (and any others who are already on the title). You and anyone else currently in the home will be able to stay indefinitely, as your ownership terms as set by your original mortgage stay intact.
From the age of 62, when you are first eligible for a HECM or Equity Elite loan, you have access to 50% of your equity. While the equity percentage rises over time, there are benefits to taking your reverse mortgage earlier:
Borrowing Against A Portion Of Your Total Home Equity Provides More Flexibility If Your Plans Change
A good candidate for a reverse mortgage will have retirement plans that include an intention to remain in their current home. Of course, this may be your plan today, but life happens, and plans can change! When your balance on your reverse mortgage is smaller, it becomes less difficult to exit your home and take up residence somewhere else. If you want to relocate to a smaller property, upgrade to a larger space, or simply relocate, you will have an easier time paying your reverse mortgage and using the remaining money from your home sale to support your move.
You can receive your reverse mortgage in a lump sum, take monthly payments, or take what you receive as a line of credit. Taking the line or credit at an earlier age will help you build that line for longer and better support its growth. This line of credit will grow as time passes because it grows along with your loan interest as well as the mortgage insurance premium renewal. The longer you hold off on accessing this credit, the more you can ultimately borrow against. It can help to think of this as a kind of guaranteed annual limit raise on your credit card.
While there are key similarities between this kind of credit line and a HELOC (Home Equity Line of Credit), there are differences worth exploring. One is that a reverse mortgage line of credit cannot be revoked after it is established as long as you do not default on the loan terms. Also, you will not have income requirements tied to this loan; you can instead establish creditworthiness with a lender’s financial assessment.
We should note that once your home’s appraised value is set for your reverse mortgage, you will not have to worry about the effect of declining market values, as a negative change in your home’s assessed worth will not impact what you can access with your monthly payments or the line of credit.
People can understand how a reverse mortgage allows you to borrow against home equity, and is not the same as selling a property. However, they can still question the amount they are offered, as it can seem low. It is certainly important to make sure that your money lasts and supports a long retirement, but it is also important that you maintain your equity reserves, which represent your stake in your home value. Depleting your reserves can hurt your true ownership percentage, causing it to shrink.
Limits on HECMs are set by the government to help protect borrowers against taking too much from their home in too short a time. What you should know is that with a reverse mortgage line of credit established early, you have access to funds if you need them, but if you can wait to access it, you can see more value from it. That credit can even build until it exceeds the market value of your home!
Some who look into the reverse mortgage benefits can feel that its closing costs are high, though for those of us who have gone through the refinancing process during a period of lower interest rates, those closing costs can feel less noteworthy. For someone who has already gone through the refinancing experience, it can be clear that while upfront costs should be considered, they should be weighed against long-term savings that better rates can deliver.
Your reverse mortgage provides long-term access to your home equity, and the closing costs that you see can actually be deducted against gross proceeds of the loan rather than absorbed as an upfront “out of pocket” cost. As with a refinancing, it is helpful to put closing costs into perspective by amortizing them over the life of the loan you receive. Borrowers typically anticipate that they will spend another fifteen to twenty years in their current residence. In that time, your reverse mortgage can eliminate the need to make monthly mortgage payments, and it will give you more security and flexibility during retirement thanks to the access you gain to your equity.
Another thing to consider is that you have access to new types of reverse mortgages: For borrowers who explore Equity Elite and Equity Elite Zero, those initial closing costs can be significantly reduced!
You may have all the retirement savings you need based on your current plans, but life can put unforeseen challenges before us. When you have established access to your home equity through a reverse mortgage, those retirement age challenges become easier to accommodate and address.
Having access to a reverse mortgage line of credit can shield you from financial hardships in important ways. It will be available to you should you need it, and it will not be withdrawn by the bank after a change in your financial situation. When you leave it untouched, it will keep growing, which means the sum available to you is larger if you turn to it for support at a later date. It also serves you in times when market investments are performing poorly. You can borrow against it instead of liquidating investments, and you can use the windfall from better market performance to pay down your credit line, keeping it low.
You should think about a reverse mortgage as more than just an immediate way to receive funds, as it can also be an effective backup plan should the unexpected happen. By opening up your access to home equity today, you can ensure it is readily available in the future if you find you need it.
While borrowers can bring concerns with them when they want to discuss equity access through HECM or Equity Elite, they can find that these loans can benefit them in key ways. They can also be pleasantly surprised at how protected they remain after receiving them, as their ownership stake in their home will not change. To find out more about how we can help you, reach out to Family Home Loan Texas today by calling 1-800-990-LEND.