Real Estate Today
Buy a home and have no mortgage payments for life? Does that sound too good to be true? Not if you are 62 years of age and older. Anyone who watches T.V. has been bombarded with advertising of the “reverse mortgage,” by the likes of movie stars Fred Thompson or Robert Wagner.
Driving down I-15 toward St. George, I saw a billboard proclaiming “Buy this $250,000. Home for $100,000 and have no mortgage payments for life.” My first thought was “what kind of a scam is that?” After further inquiry, I found out it had something to do with a “reverse mortgage,” officially known as the FHA insured HECM mortgage.
This mortgage is a device to help senior citizens free up some of their equity. They may use these loan funds any way they wish—take the money in monthly increments to supplement their social security or retirement income. Or, they might take the complete loan proceeds in a lump sum. This could be helpful to those who lost great sums in their retirement savings through their 401K programs or individual stock and bond portfolios.
Not only can you refinance your present home under this loan program, you can also purchase another home. The catch is that you must purchase it with a rather large down payment. Your down payment plus the proceeds from the new HECM mortgage would pay for the new home purchase.
Let’s say you wanted to buy a new home. You have sold your present home and have $200,000 in equity. You also have $100,000 in savings or in your 401K. This would enable you to pay $300,000 for your “dream home.” This would probably be the last home you would buy in your lifetime. This would exhaust your available cash reserves. Not a very wise decision for a senior citizen.
You could still make that “dream home” purchase by investing $120,000 down and getting a “reverse mortgage” for $180,000 and have no payments for the rest of your life. Plus you would still have $280,000 in the bank for emergencies. In simple terms this is an overview of the possibilities for this type of mortgage.
This type of loan is not for everyone. You must know the pitfalls and the cautions. Contact a loan officer who is familiar with this program. It is complicated, but it may work for some. Until next week, keep smiling. Email your questions to billbrown@dishmail.net
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