Transitioning to a Reverse Mortgage
A Home Equity Conversion Mortgage (HECM), or reverse mortgage as it is commonly known, relies on the accrual of substantial equity. Often, a HECM is a tool used by homeowners who have successfully paid their mortgage in full but prefer not to sell the home to access its cash value. In these cases, pursuing a reverse mortgage is much like applying for a home loan.
However, homeowners with a mortgage balance remaining can also consider a reverse mortgage. Similar to refinancing a mortgage for better terms, transitioning from a traditional mortgage to a HECM requires careful evaluation of the benefits and viability of moving forward.
End Your Mortgage Payment
One of the hallmark advantages of a reverse mortgage is the deferred repayment plan that delays repayment as long as the home remains your primary residence. By refinancing an existing home loan into a HECM, homeowners experience the dual impact of increasing income via equity and eliminating the expense of a mortgage payment.
Of course, doing so requires having enough equity in your home to pay off the current mortgage and support an additional cash withdrawal. Typically, this limits the appeal to those near the end of their loan term. But keep in mind that the portion of equity available to you via reverse mortgage also increases with your age, so comparing your loan balance to your home’s value is only one of the factors to discuss with your lender.
Access New Value
While a nearly-paid mortgage is the most likely reason to consider making the switch, it’s not a requirement. Some properties have experienced substantial increases in values, particularly in recent years. Homeowners 62 or older who are seeing an exponential rise in local home prices may find their equity is based more on the market than previous mortgage payments.
If you suspect your property value dwarfs your loan payoff, a HECM could be a reasonable option despite having a significant number of mortgage payments remaining. In addition, the non-recourse nature of a reverse mortgage can protect you and your heirs from having to make up the difference if the home’s value one day falls below the amount borrowed.
Protect Your Retirement Plans
Remember, not everyone who adds a reverse mortgage to their retirement plans is primarily interested in an influx of cash. Instead, many opt for a HECM for Purchase to support a plan to downsize or relocate. Doing so allows you to sell your current home and end your existing mortgage. The proceeds are used to purchase a new property and begin a reverse mortgage simultaneously, minimizing closing costs and moving you closer to your retirement goals.
Alternatively, a reverse mortgage line of credit can establish an emergency source of funds to prepare for unexpected expenses or to increase your flexibility when managing retirement investments. The result is added protection against the uncertainty of living on a fixed income.
Discuss your reverse mortgage options with a loan expert by calling us today.
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment