Reverse Mortgage Options
A Reverse Mortgage is used for one of two different types of transactions.
- Financing your current home. This usage is the typical type of Reverse Mortgage transaction and is most often what is generally considered and thought to be a Reverse Mortgage.
- Reverse for Purchase. A lesser known usage is financing the purchase of a new home they intend to move into. Few home buyers (or their real estate brokers) realize that this is even an option. For Realtors and home buyers, we have dedicated a page to the Reverse For Purchase
REGARDLESS OF REFINANCE OR PURCHASE, THERE ARE two HECM REVERSE MORTGAGE OPTIONS TO CHOOSE FROM.
Once we meet and have a clear understanding of what your goals are, you will receive guidance as to which option we feel is most appropriate. Of course, you are the decision maker, but we want to feel comfortable that you are making an educated and well thought out decision as to which option best suits your needs. Each option has its own unique characteristics and is summarized below.
REVERSE MORTGAGE OPTION # 1 – HECM ADJUSTABLE
The HECM Adjustable Rate Mortgage (ARM) has been around since 1988. It is currently tied to the LIBOR index and is updated monthly or annually. A “margin” is added to the LIBOR (London Inter-Bank Offered Rate) index and that creates the annual interest rate that is charged on the outstanding balance. The ARM option offers clients the most flexibility. The LIBOR is being phased out of the global financial markets by 2021. Any financial products that currently use the LIBOR will be reassigned to a new (currently unknown) index. Many years ago, we in the Reverse Industry, used the US Treasury Index and we’ll probably revert back to it.
- The senior can receive monthly income,
- The senior can take a disbursement at the time of closing,
- The senior can have the funds available in the form of a Line of Credit (LOC) to use on an as needed basis, or
- The senior can have a combination of any of the above!
Should needs change in the future, the structure of the loan can be changed at any time for a nominal fee. A one-time “administration fee” of about $20 is charged to modify the loan after closing. Few people realize how flexible your Reverse Mortgage options really are after closing; no other mortgage financing is as flexible as the HECM Reverse program.
Finally, you should know that any unused portion of funds (the money that is available but hasn’t been taken yet) actually appreciates at .50% HIGHER than the rate that is being charged on the used portion. Under certain circumstances, this can be used as an excellent estate planning tool and could leave a bigger estate to your heirs than just the value of the home. Given time, you may find your Line of Credit is worth more than the value of the home!
This concept is worth repeating. When administered properly and depending on the home market in your area, the Line of Credit may grow to be hundreds of thousands of dollars more valuable than the home. Over time, the larger asset may not be the house, but rather the LOC. We have a page dedicated to Financial Planning Strategies that utilize the Reverse Mortgage product and encourage you to explore some advanced concepts. Colorado Reverse Mortgage will work with you to discuss your numbers. If you have a trusted Financial Advisor or an Estate Planner, we’d like to meet with them to share some strategies they likely have not ever considered that can greatly enhance your financial health and security. Remember, the mortgage is insured by the government and the LOC has a guaranteed growth rate. The sooner you begin utilizing this strategy, the more your LOC will appreciate.
REVERSE MORTGAGE OPTION # 2 – HECM FIXED
The Fixed Rate program was created in 2008 and is not as flexible at the ARM, but it does offer an interest rate that will never change. With the Fixed program, the only option for disbursement of funds is “Lump Sum”. This means that at closing, the entire “lump of money” available is disbursed with no option for future disbursements. The Fixed Rate is often used when the purpose of the money is already known. As a simple example… If the Principle Limit (or Loan Size) is $100,000 and the senior has a $90,000 mortgage lien that gets paid off thru the closing, then the senior would have $10,000 left over to save or spend however they like.
REVERSE MORTGAGE OPTION # 3
The Jumbo or Proprietary Reverse Mortgage (PRM) is a third option that is relatively new to the Reverse Industry. To learn a little about the PRM, click here.
Each program and terms are modified for your specific needs. Your Colorado Reverse Mortgage expert will walk you through every step of the process in order to qualify, answer all of your questions and will help you select the option that best suits your needs.
*An option that makes sense for one senior does not mean that it is the best option for another senior. Every client and scenario is unique and deserves to be treated as such. So, we listen and will create an individual report for you.