I first heard about a reverse mortgage when I was a homeowner in Santa Barbara County. But I quickly learned that my husband and I weren't eligible then because neither of us was 55. I stored it away in my memory bank. A reverse mortgage is more than a quick study, though. We spoke with Eric D. Miller, a Reverse Mortgage Advisor at Mutual of Omaha in Santa Barbara, to help us understand the who, why, and when you need to know about reverse mortgages for yourself or a loved one.
Who is eligible for a reverse mortgage?
There are two classifications of reverse mortgages: the traditional, more common FHA Insured Home Equity Conversion Mortgage (HECM) requires that at least one homeowner be at least 62 years of age. This product accounts for 97% of the reverse mortgages originated in the US. Once a home's value exceeds the $1.3MM range, the jumbo portfolio or proprietary loans can be more beneficial and account for more than half of the loans I originate. The Proprietary Jumbo Reverse Mortgage requires all homeowners to be at least 55.
Both classifications allow for a reverse mortgage only on the homeowners' primary residence, which must be a 1-4 family residence, townhouse, or condominium. Here in Santa Barbara, due to our high property values, the jumbo reverse mortgage is the product of choice, allowing homeowners to maximize the amount of home equity.
Why is it called a reverse mortgage?
The term reverse mortgage comes from the simple distinction between traditional conventional financing, where a monthly mortgage payment is required, and reverse mortgages, where no mortgage payment is required. However, the homeowner is still responsible for paying their property taxes and homeowner's insurance.
When is a good time for someone to get this kind of loan?
This requires an in-depth discussion of their current and future financial goals. This decision is best made by involving their trusted inner circle, including their financial planner, CPA, and other family members. In many cases, the best time to consider a reverse mortgage is as soon as they are eligible to maximize the benefit that this valuable financial planning tool can provide. The impact of structuring this financing early in one's retirement years can compound over a greater number of years, improving the desired outcome versus waiting.
This untapped resource can increase cash flow or fund large expenditures in many ways. Examples include:
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Paying off an existing mortgage debt eliminates the principal and interest payment
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Provide monthly tax-free income to supplement existing income or reduce the number of withdrawals from savings
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Delay withdrawals from Social Security to maximize future benefits
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In-home health care needs or fund long-term care
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Home renovations
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Buffer against down financial markets
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Provide a line of credit for emergencies
Contact Eric for more information: emiller@mutualmortgage.com | 805-570-8885