HighTechLending, Inc. NMLS # 7147

How much money is left to your kids after a Reverse Mortgage?

Have you ever thought about a reverse mortgage but worried you wouldn’t leave an inheritance for your kids if you got one?  If you tell one of your friends you are thinking about getting a reverse mortgage, you might hear, “Don’t do that, they will take your home.”   Even trusted advisors like doctors and unfortunately, some financial advisors haven’t taken the time to find out for themselves, and sometimes make incorrect statements regarding this FHA insured loan.  Like all rumors, it is based on a kernel of truth.  Prior to 1988, the reverse mortgage was not a federally insured program.  A creative banker created the 1st reverse mortgage in 1961 for Nelly Young, the widow of a high school football coach that had equity, but not much monthly income.  Much has been done to ensure seniors can access their equity without fear of losing their homes.  As with typical loans today, a borrower must keep current on property taxes, home insurance, and keep the home in proper repair or the home could be foreclosed on.  In 1988 President Ronald Reagan signed the bill to make a Reverse Mortgage a federally insured program, that won’t force a senior out of their home because they run out of equity. The federally insured reverse mortgage program is known as a Home Equity Conversion Mortgage (HECM), part of the program requires monthly mortgage insurance.  A HECM is a non-recourse loan, meaning the loan has no claim on your bank accounts or assets, just on the home used for the reverse mortgage.  If the market pops and your home value goes upside down, you can stay in your home and nothing changes with the servicing of your reverse mortgage as long as you continue to pay your property taxes, home insurance, and keep your home in proper repair.  If you have money in your HECM Line of Credit or receive a monthly check from the program, it is safe and cannot be taken away from you.  In some cases, your home value will grow faster than your loan balance.   According to the California Association of Realtor data home values have grown on average 8.9% per year from 1968 to 2004; In 1968 the Median Home Price was $23,210 and in 2004 the Median Home Price rose to $450,990.  We will examine 3 different scenarios to see examples of how much equity may be left for you.  Of course, past home appreciation does not guarantee the future, but it is worth reviewing.  We will review how much equity is left based on 2%, 3% and 4% home appreciation (Qualifications based on 70 years old, $500,000 home value paying off $100,000 of existing mortgage debt, and receiving a tenure monthly payment for life of $762.62 beginning 1 month after closing.  Terms of the loan are an Expected rate of 3.78% and a monthly mortgage insurance premium of .50% with loan fees of $14,529.00.  Cash Disbursement includes the $100,000 existing mortgage payoff.)


Scenario 1:  2% Home appreciation per year

No mortgage payments for:          Home Value                       Cash Disbursement                          Home Equity

 1 year                                                   $510,000                            $108,388.82                                      $381,928.26

10 years                                               $621,687.15                        $199,903.22                                       $311,334.06

20 years                                               $757,833.17                        $291,417.62                                        $168,039.44

Scenario 2:  3% Home appreciation per year

No mortgage payments for:          Home Value                       Cash Disbursement                          Home Equity

1 year                                                    $515,000.00                       $108,388.82                                     $386,928.26

10 years                                                $692,116.94                        $199,903.22                                      $381,763.84

20 years                                                $930,147.29                        $291,417.62                                      $340,353.55

Scenario 3:  4% home appreciation per year

No mortgage payments for:          Home Value                       Cash Disbursement                          Home Equity

1 year                                                $520,000.00                        $108,388.82                                  $391,928.26

10 years                                            $769,727.03                         $199,903.22                                   $459,373.94

20 years                                            $1,139,384.03                      $291,417.62                                    $549,590.30


(I know this home value may look astronomical, but think about those that bought a home for $23,000 in 1968, they would have never believed their home would get to $450,990 36 years later)

As these examples show, when the home appreciated with inflation at 2 or 3% there was still a large amount of equity left after 20 years of no monthly mortgage payments and receiving a check of $762.62 each month.  As our historical data showed for 36 years the homes appreciated around 8.9% per year.  At 4% appreciation, the equity actually grew even though monthly mortgage payments were no longer made and the borrowers received the $762.62 per month check.  Can you imagine how much equity would be left if the future home appreciation was anywhere near the 8.9% it was at previously?   A HECM reverse mortgage may allow you to use your current equity and possible future equity to help live the retirement you have dreamed of.  Today’s HECM reverse mortgages are different from Mrs. Young’s in 1961; they are FHA insured and the qualified payouts are guaranteed.  Perhaps you may want to investigate whether this is a viable option for you to remain independent, and possibly leave an inheritance for your kids.  Why not suggest to someone you know to at least look into how a reverse mortgage could benefit them?    Click on this link to see what a reverse mortgage may do for you.

Robert Krepps, NMLS #255191, at HighTechLending Inc today to discuss how a reverse mortgage may be able to help you (877) 567 – 7476 or rkrepps@hightechlending.com .

HighTechLending Inc, NMLS # 7147, is an Equal Housing Lender.  Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act.


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