By Bob Tranchell on August 20, 2013

Reverse Mortgage: No Time to Wait!

HUD has announced changes to the reverse mortgage that could have a dramatic impact on the money available to borrowers. Essentially what that means is that now may be the best time to take a reverse mortgage. Interest rates are low and borrowers will benefit from maximum calculations available with the present programs.

In light of these changes there are two scenarios you may want to consider.

1. Take out a Line of Credit now and utilize it later.

2. If you have a mortgage; take out a reverse and make similar payments growing a line of credit for future use.

HECM Line of Credit

A 62 year old, with a home value of $400,000 and no mortgage would have an opening line of credit of $223,000*.

Through the years the line of credit would grow at a rate 1.25% higher than the loan interest rate. This gives the borrower a compounding growth in availability. The line of credit balance is available to be used however the borrower wishes without any further approval. The proceeds are tax-free.

It is also guaranteed by federal mortgage insurance.
Line of Credit at 70: $ 371,969
Line of Credit at 75: $ 552,096

Making Mortgage Payments on a Reverse

Seniors who can afford paying a monthly mortgage, rarely consider using a Reverse Mortgage and making payments. This strategy ignores the compounding benefit of the line of credit growth rate.

Let’s compare using a Reverse Mortgage and a traditional mortgage, making the same monthly payment. The benefits are many and the results are dramatic.

A 62 year old, with a home valued at $400,000 has ten years left on a 30 year fixed mortgage. The balance is $120,000. The monthly payment at 4.25% is $1230.

Let’s compare what happens if you make the same payment towards a Reverse Mortgage and see the benefits of the Line of the Credit growth rate.

At age 72 when the traditional mortgage would be paid off, the Reverse has a balance of $48,858 and the Line of Credit is $419,365. At 76 the Reverse is paid off*, and the Line of Credit of $641,778. These funds available to the senior and are tax-free unlike many retirement funds.

Home Value	At Age 72	At Age 74	At Age 76
RM Line of Credit	$419,365**	$522,954**	$641,778**
RM Balance	$48,856	$25,343	$50*
30 Year Balance	$0	$0	$0

*You must maintain a balance of $50 or it triggers closure of the loan. **The rates and fees in the materials are estimates. Moody’s Analytics is used for 1 month-LIBOR and house price appreciation rate forecasts. Figures were calculated on 8/20/2013.

Benefits of a Reverse Over a Traditional

Line of credit growth rate. (as seen above)
Ability to miss or reduce payments.Let’s say at 65 a trip to Paris is taken, you can skip a payment or two, no problem. If finances are tight you can reduce the monthly payment or stop making payments. No fear of foreclosure through non payment.
Ability to borrow at any time. If a need comes up you can borrow money from the Line of Credit.
Ability to borrow large amounts. No need to be approved the money is available, tax-free.
Hedge against home value decline. If your home’s value goes down a traditional HELOC can be frozen or cancelled, a reverse is guaranteed.
Hedge against interest rates rising. If interest rates rise so does the growth in the LOC.
The security of a government insured Line of Credit. If the bank fails or the economy crashes the LOC is still available and guaranteed even if the line is higher than the home value.

Call me today to see how it might work for you!