WHAT’S LEFT TO MY HEIRS - REVERSE MORTAGES by Kevin Kohler, Sr., Reverse Specialist
Understandably, one of the most important questions someone asks when contemplating taking out a Reverse Mortgage is what will be left to my family and heirs. It is a common core thought and feeling among many Americans that they want to pass on their accumulated
wealth and assets to their family, including their home or equity from their home. It is sometimes met with a feeling of selfishness that to take out a Reverse Mortgage means that a significant financial asset will no longer be able to pass along. There is some truth to this, but not always to the extent that most people think. First, taking out a Reverse Mortgage is similar to any other type of mortgage. It creates a lien against the property, and one that eventually does get paid off after one of two things happen: 1) when you permanently move out of the property, or 2) when the last surviving household member passes or moves out. Until that time, no payments are ever required. Taxes and insurance must always be paid. Just like other mortgages, interest accrues per the interest rate, but instead of making
monthly payments, that interest is put onto the principal balance. Therefore, the balance will increase over the years. However, let’s look at how an initial set up of a Reverse Mortgage works. With the FHA insured Home Equity Conversion Mortgage (HECM), the traditional Reverse Mortgage, FHA will use a formula based on current age and life expectancy, as to how much equity they will allow to be provided in the mortgage. Typically, this will range between 35-40% for someone close to the minimum age of 62 (or if a nonborrowing spouse is below 62) and about 70% for someone in their late 80’s. The nature of this formula is to allow enough remaining equity to cover the interest accrual until the life expectancy is reached. Simply put, if someone outlives the life expectancy by a significant amount, FHA is on the hook for covering the loss for what the home could cover through it being sold. But that’s just it. Just like interest will accrue, so, too, does the appreciation in value of the home. And when the time comes of passing, or of moving permanently out of the home, the home can be sold through the estate or an heir can pay off any existing
balance of the Reverse Mortgage. Any equity that remains is still there to give. However, if the balance of the Reverse Mortgage would happen to exceed what the value of home would be, then the heirs have the option to give the home over to the lender and FHA will incur any loss through FHA’s insurance. To show an example, let’s use the following scenario. The senior’s age is 65 with a home that is worth $250,000 currently, and the Reverse Mortgage is taken out for $100,000, with an interest rate at 5.0%. If they would pass at 80 years old, and assuming the home appreciates in value at 2% per year, then in 15 years, the mortgage balance would be $207,892 and the home value would be $336,467. At that time, the decision could be made by the heirs, if they wish to pay off the mortgage balance and retain the home, or they could sell the home and still realize a significant amount of equity.
Kevin Kohler, Sr. Reverse Specialist with First Integrity Mortgage Services, NMLS 404277 More information: (314) 878-7900
QUALITY OF LIVING Independence Financial Freedom Comfort Age-Friendly With a Reverse Mortgage, you can access equity in your home to:
Pay off your existing mortgage to get rid of payments
Travel
Renovate your home
Eliminate bills
Pay for medical expenses
Create a Line of Credit
Have an emergency fund
Purchase a new home/downsize
There is never a required monthly payment. You retain ownership of your home. Kevin Kohler / Dave Mattull
B
usiness
Sr. Reverse Specialists Office: 314-878-7900
First Integrity Mtg Svcs
kkohler@firstintegrity.com
77 West Port Plaza, Ste 200
davem@firstintegrity.com
St. Louis, MO 63146
NMLS # 404277 / #241253
Company NMLS# 276593
JANUARY 2016 ∙ www.activelifestylesmag.com ∙ 18