Unlock Your Housing Wealth

Examining Your Financing Options

With rising interest rates, it’s a good idea to consider all of your financing options for the purchase of your new home. In the Spring issue, we discussed reverse mortgages and why they might be a good alternative to a traditional mortgage or paying cash. When purchasing a home with a reverse mortgage, you can increase your buying power with the funds you need while eliminating a monthly mortgage payment. Here, we wanted to show you an example of how the process works.

Reverse for Purchase

Jerry and Kathy, both 68, have decided to move forward with their retirement dream of living close to the beach on Florida's Gold Coast. They are purchasing a home for $650,000, but they will only receive $460,000 from the sale of their current home. They could decide to go with a traditional 30-year loan for the remaining $190,000 at 5.5% interest with a monthly principal and interest payment of $1,078 and pay $198,367 in interest over the life of the loan.

Or, they could take out a reverse mortgage* which creates an additional $106,700 in available funds and no required monthly payments. Jerry and Kathy can now choose any combination of the following:

• Take all loan proceeds and add to their retirement savings

• Apply the $106,700 to their loan balance and create a line of credit with a growth feature, or

• Make voluntary payments to maintain equity.

Requirements

• Must be 62 or older

• New property must meet outlined requirements; it must be a single-family residence, 2-4 unit property, townhome, or condo

• New home must be your primary residence

• Maintain new property and keep up-to-date on property taxes, insurance, and any HOA fees

This illustrative example generated on 4/1/2022 assumes a loan with a principal limit of $366,000 and a variable-rate initial rate of 3.275% changing annually with a maximum rate of 8.275%. Loan origination fee of $0 and remaining loan fees of approximately $0. Monthly loan servicing fee of $0. Terms may vary and conditions apply.

The borrower must meet all loan obligations, including living in the property as the principal residence and paying property charges, including property taxes, fees, and hazard insurance. The borrower must maintain the home. If the borrower does not meet these loan obligations, then the loan will need to be repaid.

*A reverse mortgage empowers qualified borrowers access to the equity in their home or purchase a property without any required monthly mortgage payments. Interest and fees are added to the loan balance over time rather than collected monthly like a traditional mortgage. The balance is repaid when the last remaining borrower permanently leaves the home or if the loan terms are not met.