Reverse Mortgage line of credit: A Growing
Trend in Reverse Mortgages
It seems like only yesterday that the vast majority of the reverse mortgages that I originated were for folks who could no longer afford to pay their mortgages. Sometimes they ran out of their savings or their retirement accounts became depleted or possibly they lost the income from their spouse because their spouse passed away. Of course these situations still account for a large part of my clients, but in the past year I have noticed a sharp rise in the number of reverse mortgages that I have originated for people who are doing long term financial planning. Often these clients have a small mortgage they are paying off or they have no mortgage at all. These clients are often referred to me by financial planners or sometimes by their attorney. It appears that many professional advisors are starting to look at their client’s home as a valuable part of a long term financial strategy.
Let’s take a look at an actual scenario for a loan that I closed last month. My client was referred to me by their financial planner who is familiar with a very unique feature of a Reverse Mortgage line of credit. His advice to his client was to open a Reverse Mortgage line of credit, not for use now but for possible use in the future. This financial planner discovered a unique feature with a Reverse Mortgage line of credit: when you don’t use the line of credit in any particular month or year, the line of credit actually grows. Each borrower’s situation actually varies depending on the value of their home, but let’s take a look at the actual numbers for my client.
My client’s home is worth $625,000. With this value, he qualifies for a Reverse Mortgage line of credit in the amount of $346,672. This client has other assets that he is planning on using in his retirement, but his financial planner advised him to set up this line of credit as a part of a long term financial strategy. This advisor researched reverse mortgages and discovered that when the line of credit is not being used it grows at a pace that is one half of a percentage point above the prevailing interest rate in the mortgage. What does this mean in real numbers for my client? It means that his original $346,672 line of credit will grow to $801,322 in fifteen years!
His financial planner accurately realized that our mutual client might need to access that line of credit later on in his life (as well as his wife’s) for a variety of reasons, most notably for expenses related to health care. As my client gets older he may need to access the equity in his home for in home health care or other health related issues. Of course he could access this money for any reason he desires, but his advisor’s strategy was to give him access to this money specifically for issues related to comfortably aging in place.
When my client does access the money in his credit line he does not have a monthly repayment obligation because it is, of course, a Reverse Mortgage line of credit which does not require re-payment until the last surviving borrower leaves the home permanently. The loan is usually paid back by the sale of the property, but my clients heirs may want refinance the balance if they want to keep the home. Also, when my client does choose to access the equity in his property it is not a taxable event as the money is proceeds from a loan.
With over 10,000 people a day turning 62, many of them homeowners, I think I will continue to see financial advisors looking at their client’s home as an asset that can be accessed to help with the financing of issues related to aging in place.
Dan Collins is a Reverse Mortgage Specialist (NMLS # 30130) with Continental Funding Corporation (NMLS # 2723) He has been specializing in Reverse Mortgages for over 10 years. He has also been featured on the FreeMoneyRadio program and can be reached at 9782398446. or [email protected].
For a free copy of The National Council on Aging’s booklet titled “Using Your Home to Stay at Home” feel free to contact Dan at the information provided above and he will get a copy in the mail to you right away. This booklet contains excellent information about a wide variety of options to help senior citizens remain in their homes after they retire.