Reverse Mortgage – Bottom Line
If you’re considering applying for a Home Equity Conversion Mortgage, you’ll probably want to look at the pros and cons of the loan – the upfront costs, the loan fees, your responsibilities under the terms of the loan and your options. But when it comes right down to it, in making your decision, the bottom line will probably center around the amount of money that you’ll receive under the terms of the loan. Since this varies widely – each applicant’s payout is dependent on the equity that he/she holds in the home – you’ll need to examine the loan in light of your own particular circumstances.
Don’t forget that monthly and yearly obligatory payments, such as property tax payments, payments for the interest on the loan, homeowner’s insurance and other financial responsibilities must be factored into the decision.
So how do you figure out that bottom line?
How Much Will You Receive?
The cost of retirement has been estimated to be almost $3750 per month, or $40,000 annually, depending on your lifestyle. So it’s obvious that it’s important to start planning for retirement early on.
A Reverse Mortgage can help you to meet these expenses. Reverse Mortgages are available through the Department of Housing and Urban Development (HUD) to qualifying older Americans age 62 or above. Under the terms of the loan you must:
1. retain a substantial amount of equity in your home
2. occupy your home as your primary residence
3. Demonstrate, by your credit and other financial history, that you are ready and willing to meet the loan obligations .
The amount that you will receive is based on the value of the home and your age. The exact value of the loan will be determined when you apply for your loan, though at the mandated counseling session that you attend as a pre-requisite to beginning the loan application, the counselor will be able to help you estimate how much money you will receive and how that will translate to your draw options – monthly payments or a line of credit.
Here’s an example of how HECM loan payouts will be able to help you more easily meet your retirement goals.
Arthur is 70 and his wife Patricia is age 62. Their home is valued at $200,000 and they’ve decided to use their home equity to meet their financial goals for retirement. Patricia and Arthur decide on monthly payout draw option which will be based on Patricia’s age, since she’s the youngest spouse in this scenario.
If the couple’s credit history is solid and there’s no need to create a “set-aside” funds that will cover loan expenses, the couple could, potentially, receive approximately $80,000 in a line of credit. This line of credit will increase by 4.6% each year. Alternately, they couple would be able to choose to draw their equity as monthly payments which would give them an extra $509 every month.
These options are dependent on one or both individuals retaining primary residence in their home.
Since interest rates on the loan, calculated by the U.S. treasury, vary, the exact amount may vary slightly.
This example provides a basic example of how a reverse mortgage could help Arthur and Patricia more easily meet their monthly obligations. If you’re considering a Reverse Mortgage, you should speak to a representative at a lending institution to obtain more up-to-date information about how the loan will impact on your own personal retirement situation.