With the constant struggle for everyone in this low interest rate environment we all have to work smarter, not harder to achieve our goals. This is especially true for retirees that no longer earn wages from employment and have to make due with income from Social Security and their savings. In spite of this challenge, opportunity and flexibility are still abound if you know where to look.
Allow me to introduce you to a HECM for Purchase mortgage. Most people have never heard of this and they immediately assume there is some mechanism of refinancing their existing home to buy another home. This is where the confusion begins and the thought process and interest on the subject ends. This is not the case. A Reverse to Purchase has nothing to do with your existing home. This is a new federally insured Reverse Mortgage for a new primary residence you may wish to buy. Why is this so important?
Many people 62 years of age and above may want to move to be closer to family or they simply may want to downsize their home. This is the logical path to enjoyment but most people want to own their homes. It provides security and peace of mind. A Reverse to Purchase will allow you to select a new primary residence and obtain a mortgage, with no income or employment qualifications, based on the reconciled appraised value of the home and the age of the borrower. Property value and age determines the eligible loan amount. The difference between the eligible loan amount provided by the Reverse Mortgage and the purchase price is the required down payment. In addition to the down payment a schedule of closing costs will also apply. Rates and program options combined with available lender credits will allow you to tailor the closing costs to your desired level.
This is an outright purchase of a new home. If you have an existing primary residence, you are not required to dispose of your existing home. You will have the option to keep it for rental income or sell it now or later upon your discretion. Some lenders apply program underwriting overlays regarding this issue that will remove this flexibility so you have to be selective. This is a very attractive feature and the program should not be diminished with ridiculous overlays. Most people will draw equity from their existing homes for the down payment and closing costs of the new purchase and others will draw it from savings with a plan to replenish it with the eventual sale of their existing primary residence. You have the flexibility to make that choice.
Now I want to direct the focus back to the low interest rate environment and how we can really help position the American Senior Citizen for a comfortable and secure retirement. A key element of this objective is to eliminate the mortgage payment. Once you move into your new home with a HECM Federally Insured Reverse to Purchase loan you don’t have a monthly mortgage. This is the real beauty of the program. You are only required to pay the real estate taxes and homeowners insurance and maintain it according to FHA standard guidelines. If you were accustomed to making a mortgage payment in the past or if you were anticipating this requirement as part of a move, it no longer applies. Not having the monthly burden of making a mortgage payment but still having the flexibility to own the home that is right for you is the first step to creating an enjoyable secure retirement.
Now let’s “Dig Deep” because we are getting to the part that I absolutely love. Every senior I have ever spoken with has given me some sort of a cue of their income insecurity. Some are more subtle in communicating this than others but this is part of the life cycle. We will all get to this point one day when we decide to stop working and we are forced to manage our retirement with finite assets and income. Most of us will not be privileged with more than Social Security and retirement savings that are taxable upon withdrawal. Many seniors will be forced to make significantly higher percentage level withdrawals from retirement than is suggested due to living requirements. This is not a fun topic but it is factual and it creates risk and should not be ignored. This also is a key component of natural income insecurity that compounds the fear that all seniors face, the fear that we may outlive our resources.
Let’s outline a path to address this fear head on. Do you think it is possible? Not only it is possible but it is quantifiable, safe, and most of all a credible option you can get your arms around without the fear of being ripped off by some carpet bagger that preys on retirees. Remember, we are talking about a federally insured HECM Reverse and not a privately issued reverse mortgage.
Let’s revisit your previous primary residence. Hypothetically, you have just completed the purchase of your new primary residence with a Reverse to Purchase mortgage. Specifically you have selected the adjustable rate program option on the basis of its future flexibility. Now let’s assume that you are tired of renting out your previous primary residence or you decide to sell it at some time in the future. You may have decided to sell it up front but it really doesn’t matter. The key assumption that we have to make is that you have equity in your previous primary residence, either in the property or after its sale parked in a savings account. Now you have the option of taking a portion of this cash and paying down your Reverse Mortgage. I am not suggesting you pay if off. I am only suggesting rather than sitting on several hundred thousand dollars that you will feel pressure to invest for income in a low interest rate environment that you pay down your new Reverse Mortgage. This will allow you to establish a credit line. This credit line will grow as your eligibility grows with your age. This will provide you a reserve and when the time is right you will be able to convert this credit line into a tenured payment. What is a tenured payment? This is an annuity like payment that you will receive for your life and for the entire life of the surviving spouse or second borrower no matter how long you live. You can not run out of home equity with this option. Does this begin to address the thought of insecurity? Can you see how a plan is essential?
Now you have a new home with no mortgage payment. You have Social Security and your retirement savings. The annuity like payment that you create will allow you greater control over your ultimate financial destiny because now you may not be forced to pressure your retirement accounts with over withdrawals, thereby allowing them to grow tax deferred with a longer life expectancy. You also don’t have to take risk reaching for yield with your savings. Your savings will be safe and your home will not only be providing you shelter but also working for you financially. You have the income you need and you are now in a position to live a more enjoyable and financially secure retirement.
I welcome you to visit our site at www.jeffersonmortgage.com and investigate the merit of a Reverse Mortgage for your situation. We have several pages of information under the tabs for Reverse Mortgages and we also have several blog entries outlining how a Reverse can be an effective retirement tool for a multitude of scenarios. My staff and I are always available to help you with a plan - contact us.
Blogging from the front line.
George Omilan
NMLS#873983