What? No House Payment?

By Jim Palmer Jr.

After a recent sale of their rural property, an older couple moved to another area to be closer to family, hospitals and doctors. The general idea was to scale down, but they found that prices were higher than they thought in the town and state they had chosen for their last move. Using the equity from their sale in the country, they were able to purchase a more expensive home in another city  using what is called a Reverse Mortgage. That means they will never make another house payment again as long as they live in the house! The borrower on such a loan can choose to repay as much or little as they like OR make no monthly principle and interest payments. As with any mortgage, the borrower must keep current with property taxes, insurance and maintenance as part of their ongoing loan obligations.

Because the awareness of Reverse Mortgages for purchasing a home is still relatively low among homebuyers, this product receives little attention, even though it may be a great tool for those over 62 years of age. It also may allow a remaining spouse to stay in their current property without the burden of a monthly mortgage payment if they refinance using a reverse mortgage.

Even though this is a FHA loan which traditionally only requires 3 1/2% down payment, the down payment on a purchase using a reverse mortgage is between 29% and 63% of the purchase price depending on the buyer’s age or Eligible Non-borrowing Spouses age if applicable. The rest of the funds come from the reverse mortgage loan. The older the borrower, the less the down payment or equity required. Of course if the borrower is staying in their existing home and are just refinancing with a reverse mortgage, there is no down payment requirement as long as there is sufficient equity. For example, a married couple, age 76 and 75, with an expected interest rate around 5% will qualify for 47.5% of their home’s value up to $679,650.

This type of loan does not fit all circumstances but it is a great tool for some who have few options financially and need to purchase a new home or for those who want to stay in the family home but need to access the equity without taking on the additional burden of monthly payments.