You are of Reverse Mortgage (RM) age and you don’t need the money. You should get a RM anyway. There is a powerful tool in a RM called a Line of Credit Growth Rate. On the HECM(Home Equity Conversion Mortgage) Annual program with an initial rate of 4.35% (plus monthly MIP) charged on only the money used, there is a 5.6% growth rate on the money left in the program! So, if you don’t need the money, you can get a RM and leave ALL of the money you qualify for and let it grow; compounding Annually. You have paid compound interest for years to pay off your home, now is your chance to have compound growth work for YOU.
Rates are at historical lows now, but most will agree they have to rise soon and when they do, it will be so much better for those with money compounding in RM Lines of Credit. On the HECM Annual RM the rate adjusts once a year, if rates go up 2%, your growth rate also goes up 2%. Let’s say you had a home worth $600,000 and you are 62 with loan fees of $11,500. As for these upfront fees, they are well worth it; They let you secure a large pool of future borrowing power, at a time when future prices will drive your monthly expenses up. You only have the cost of doing the loan being charged interest of 6.35 %( plus monthly MIP). The 303,000 you qualify for should be left untouched on a RM LOC growing at a rate of 7.6% you would have available 326,028.00 in one years’ time. After 10 years of this growth rate you would have $630,326.00. After 13 years you would have $785,239 available on your RM LOC. This amount would conceivably be more than the actual home is worth at that point.
You would be able to pull this money out, and much, if not all of it would be tax free (check with your tax advisor)! You could put this money in your bank account and your heirs could use this to purchase your home back at 5% under the appraised value of the home, even if it is upside down at that point because you pulled out more money than the home is even worth. Or you could purchase rental properties, or travel the world with this money and you and your spouse will always have a home with no mortgage payments for life. Any remaining equity or money in your bank accounts passes on to your heirs, the RM has no claim on either of these things.
For those that think they don’t need a RM, I would ask you to run numbers yourself and consider, why wouldn’t you want to be able to withdraw from your home, more money than it is even worth and still be able to live in it payment free? This is a little known strategy on RM’s and even lesser applied, but for those that know it and take advantage of this strategy, they will be laughing all the way to the bank!
If you would like to check your own RM scenario go to www.funds4seniors.com and click the calculator or call us at (877) 567-7476.