If you are 62 or older, you may want to consider a Reverse Mortgage on your home. Reverse Mortgages have improved and bring you more benefits at a lower cost.
Advantages of a Reverse Mortgage
If you are at least 62 years old and owe very little or nothing on your home, you can use a Reverse Mortgage (FHA-insured Home Equity Conversion Mortgage, or HECM) to live on your equity without mortgage payments, for the rest of your life:
- Obtain the equity in your home now, in monthly installments, or as a line of credit.
- Live in and own your home without mortgage payments–as long as you occupy your home–regardless of your age or the amount of equity left in the home.
Homeowners with larger existing mortgage balances can pay off their mortgage with a Reverse Mortgage, obtaining immediate payment relief of principal and interest, and potentially collect equity if the approved loan size is larger than the current pay off amount. Reverse Mortgages can also be used to purchase a primary residence if you can pay upfront the difference in the cost of the home and the amount of the Reverse Mortgage.
You’ll own your home as long as you live, without mortgage payments, independent of the future value of your home.
Your responsibility is limited only to paying annual property taxes and insurance. You must also maintain your home and complete typical repairs.
When it is time to sell your home, if the future value of your home is less than the amount of the Reverse Mortgage, your estate owes nothing to the lender, as long as the house is sold at whatever price the marketplace will bear at the time. As a non-recourse loan, any deficiency is waived. If the property is sold for an amount over and above the balance on the Reverse Mortgage the remaining value of the home goes to you or your heirs. A Reverse Mortgage can also be refinanced by you or your heirs, if they decide to retain ownership of the property rather than sell it.
The largest FHA-insured Reverse Mortgage available in Marin during 2011 is $625,500. Maximum Loan limits are County-specific. If your mortgage exceeds the current FHA limits, there are portfolio products that offer Reverse Mortgages for homes up to values of approximately $6 million.
Income from a Reverse Mortgage is not taxable as it is your equity–and your Social Security and Medicare benefits are not affected although some Supplemental government assistance programs may.
Costs of a Reverse Mortgage
These are the potential costs of a Reverse Mortgage:
- Origination fee paid to a lender can be up to 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000, with a cap of $6,000. This can be completely waived at slightly higher interest rates.
- Mortgage Insurance: Initial and Annual, paid to the U.S. Department of Housing and Urban Development (HUD). The initial amount can be financed and the annual amount is included in the loan.
- A possible Monthly Service Fee of $30 or $35 paid to the lender.
The initial mortgage insurance fee is either 2% (HECM Standard) or .01% (HECM Saver) of the lowest amount of $625,500 or the property value, whichever is less. Choosing the “Saver” option reduces the maximum loan size. You can finance this initial mortgage insurance payment in your mortgage and therefore not need have an out-of-pocket expense.
Annual mortgage insurance equals 1.25% of the mortgage balance but is included in your loan, not paid for separately.
For a Reverse Mortgage of $625,500, these are the maximum fees you might pay:
- $6,000 origination fee, potentially waived on fixed-rate Reverse Mortgages in exchange for slightly higher rates.
- $12,500 initial mortgage insurance, but this fee may be financed.
- $7,819 per year or $652 per month for annual mortgage insurance, but this is also covered by the loan, not paid for separately
- $420 per year or $35 per month for a loan service fee, although some lenders to not charge.
Is a Reverse Mortgage Right for You?
If you plan to stay in your home more than a few years and you owe nothing or a small amount on your home and you want to receive tax free income from the equity in your home, or you desire to pay off your current balance and eliminate your monthly mortgage payment, a Reverse Mortgage is worth considering.
There are many factors to think about, but fortunately the government requires that you obtain counseling before making a decision. You might start by talking to a local, qualified mortgage broker. Madeline Schaider Real Estate recommends Lisa Fonarow and Shayne Alaniz, our experts on Reverse Mortgages. You can reach them at (415) 925-5225, ext. 213.
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Exceptional Tiburon Townhouse — Not on the MLS
259 Trinidad Drive, Tiburon, CA
3+ bedrooms, 3.5 baths
Over $200K in upgrades
Shown by Appointment: Contact Madeline at (415) 515-9357 or Alan at (415) 310-8605
Custom designed and built by the developer of Tiburon Mist in 2006, this 3 bedroom, 3.5 bath home offers exceptional quality and amenities in approx. 2,300 SF of bay front living:
- Maple flooring with radiant heat on all levels.
- Wood-paneled elevator serving three levels.
- Specially designed master suite on top floor with bay views, stunning wall of custom closets and storage, and outdoor balcony.
- Second bedroom suite on top floor with walk-in closet, wall of south-facing windows, and private stairs to living area below.
- Spacious, entry level bedroom suite with private patio and separate entrance.
- Great room with bay view, cherry kitchen cabinets with dramatic granite, stainless appliances, and two outdoor balconies.
- Hot water recirculation system for instant convenience.
- Attached two-car garage.
This home was carefully selected from the 12 homes at Tiburon Mist in Paradise Cay for excellent all-year light, views, and privacy. The developer then reconfigured the top floor, and the owner invested approx. $200,000 in quality upgrades. Don’t miss this opportunity if you have or anticipate the need for an elevator.
Elegantly Remodeled Bay and SF View Home
494 Sausalito Blvd., Sausalito, CA
3 bedrooms, 2.5 baths
Open Sunday, December 4, 1-4 pm
Exquisitely remodeled adult home with fine finishes, ready for easy living and gracious entertaining. Chef’s kitchen with breakfast nook, butler’s pantry, central island, farmhouse sink, and Wolf range. Adjoining the kitchen is an a large flagstone deck with amazing views. From the formal dining room, wrap-around windows provide a 180 degree bay view. The large living room with beamed ceiling features a massive stone fireplace with flanking entertainment units. A large master bedroom suite with stunning views has a walk-in closet, a sitting area, and a large bonus room for an office, studio, or storage. There is a recently built, attached garage on the entry level.
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Remodeled Meadwcreek Townhome
42 Creekside Court, Corte Madera
3 bedrooms, 2.5 baths
Offered at $699,000
Sold on Dec 1, 2011 for $673,000
Meticulously remodeled and maintained former Model Home at Meadowcreek Station in Corte Madera; only 3 units in building. Living room with two story ceiling and high windows capturing the view of Ring Mountain to the south. Custom granite finishes, new appliances, cherry wood floors, custom paint, and more. Mature south-facing private backyard, designed by a Master Gardener, boasts a paver tiled patio, deck for entertaining, level lawn, rose garden. Borders the San Clemente Creek.
Wishing you and enjoyable Holidays and a rewarding year ahead,
Madeline, Robert, Beat and Alan