One of the big myths surrounding a reverse mortgage loan is that the home has to be owned free and clear in order to get a reverse mortgage loan. This is not the case. You do, however, need to have equity to make it work.
Let’s look at an example of how the reverse mortgage loan can pay off an existing mortgage loan. First, it is important to understand the basics of how a reverse mortgage loan is calculated. The amount a person gets will depend on three factors: the age of the youngest borrower on the loan, the value of the home and the interest rate.
For this example, we will use the fictitious names of Bob and Sue Smith. Bob and Sue have applied for a reverse mortgage loan. Based on above mentioned factors (the age of the youngest borrower, the interest rate, and the value of their home), Bob and Sue will receive $75,000.00 in proceeds from their reverse mortgage loan. They owe $60,000.00 on the home. If they choose to move forward, the reverse mortgage lender will pay off their current mortgage loan ($60,000.00) and that loan will be replaced by the reverse mortgage loan. This means the Smith’s will no longer have to make that monthly mortgage payment.
As the homeowners, Mr. and Mrs. Smith will need to continue to live in the home, pay their property taxes, homeowner’s insurance, HOA dues, etc., and maintain the home.
Once the existing lien of $60,000.00 (and closing costs) are subtracted from the $75,000.00 reverse mortgage proceeds, the remaining balance will go to Mr. and Mrs. Smith.
What if the Smiths owe $80,000.00 on the home rather than $60,000.00? Does this mean they cannot get a reverse mortgage? They certainly CAN! However, since there cannot be any outstanding liens against the house (other than the reverse mortgage loan), this means that the Smiths would need to pay the difference between what is owed ($80,000.00) and what the reverse mortgage would provide ($75,000.00) plus closing costs. If they are in a position to do so, and it makes sense to them, they can proceed with the loan.
Have questions? Call us! We’re happy to help work through your scenario. 855-469-7383, Ext. 802. Be sure to sign up for our free reverse mortgage guide too!
Please note that the above example is provided for illustrative purposes only. It is in no way intended to provide financial advice, nor is it an offer to enter into an agreement. The amount you receive may be different based upon your individual factors. Not all customers will qualify and information, rates and programs are subject to change without notice.
Laura Funderburk is a highly sought after reverse mortgage loan specialist in Dallas, Texas. She has focused on this specialty loan for many years and stays up-to-date on the latest trends and changes. She is known for helping retirees supplement their retirement income using a reverse mortgage loan without being pushy or overbearing.
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