Using a Reverse Mortgage
by Bert Holtje
Many agents, by the time they start an agency, have either paid off their home or have very little left on the mortgage. A reverse mortgage allows you to tap the value of the house in a very interesting way. The bank that lends you the money under the terms of a reverse mortgage either gives you money in scheduled payments, or gives you one lump sum, regardless of your credit rating. The loan is made solely on the value of the house. The bank will get its money from the funds it receives when your house is finally sold. Typically, this happens when you move from the house or die. The loan can, of course, be paid off with other funds if they become available. If the money from the sale of the house exceeds the value of the loan, you will be paid the difference. In general, the older you are, the larger the monthly payment you can receive. It’s a life expectancy thing, as you can see.
A reverse mortgage can put a significant amount of money in your hands quickly, if all the conditions are right. There are no payments to be made during the term of the loan, and the payments you receive are tax- free. An additional benefit is that you don’t have to have a squeaky clean credit rating to take advantage of this way of getting money. The big disadvantage, as you have probably guessed, is that your home must be sold eventually if other funds are not available to pay back the money.
You can use the reverse mortgage through an FHA loan. When you do, government insurance protects the lender against loss if the value of the home drops over the period of the loan. When banks make non-FHA reverse home loans, they usually buy the insurance themselves, but add the cost of the premiums to the cost of the loan, to be paid by the borrower. And, there are times when these loans go uninsured, which can be a risky process. These uninsured loans are usually the least expensive and can provide larger amounts of cash. But lenders who make these loans usually make them for shorter terms than those offered for insured loans. Be prepared to move if you haven’t the funds to repay the loan when it’s due!
Next month, discover the most practical way to fund an agency, refinancing your home loan.