Reverse-Mortgage-Truth.com

This is the final post in a series.

Most of the time costs associated with the option ARM are greater than those for a reverse mortgage. The closing costs tend to be similar amounts, but the interest rates on option ARMs average about 1% higher. Far more costly is the fact that you must cash out all the money at once from an option ARM rather than being able to take it out of a line of credit on an as-needed basis. The line of credit allows the loan interest to accrue more slowly since you keep the mortgage balance lower for a longer period of time, so that the loan interest accrues against a smaller balance. The option ARM only partially offsets this factor in that the homeowner pays a portion of the interest each month.

Common wisdom would indicate that seniors should look before they leap into an option ARM. It is really designed for working people who are willing to trade some of their equity for the privilege of freeing up some monthly cash flow for a period of time. But reverse mortgages for seniors are a far better choice in most cases.

Another possible alternative to the reverse mortgage is to sell the future appreciation of your home. As you probably know, a reverse mortgage allows you to tap your current home equity. You can pull out a lump sum of cash, get a monthly income, a line of credit or a combination of these options. Reverse mortgages are just like a regular mortgage except rather than paying the interest on the loan each month, it is deferred and paid back at a later date. And like a regular mortgage, you must have substantial equity in order to qualify for reverse mortgage (but not income, credit or other assets).

But what if you don’t have the equity that is needed for a reverse mortgage or the qualifications for traditional mortgage, but still need cash? Where there’s a need, there’s usually a solution. Enter the idea of selling your home future appreciation (SFA).

Rather than using your current home equity, an SFA plan taps in your FUTURE equity, not your current equity. But like a reverse mortgage, it does not require any payments and is not even a loan so it carries no interest rate and is not a debt. An investor offers the homeowner 12-15% of the value of their home in exchange for one half of the future appreciation of the home. For example, suppose your home appraised for $600,000 and the investor gave you $90,000. And ten years later, you sold your home for $800, 000. That is appreciation of $200,000 since you made the deal so the investor gets $100,000. Of course, he is betting that your home will appreciate a lot more, but that’s a risk he takes.

An SFA plan is designed for people 65 and over who won’t soon be headed to a nursing home. There are a number of requirements in order to qualify, but credit, assets and income are not on the list! The main thing is that you must be is relatively good health and have at least 30% equity in your home.

With the way the real estate market is going these days, selling your future appreciation may be a reverse mortgage alternative to consider. If you’d like to discuss California reverse mortgages or the SFA plan with me, I’d be happy to help.

Luke Helm
Senior Solutions Specialist
www.reverse-mortgage-info.net

There are many seniors over 62 on a fixed income that need more cash for living expenses, have a desire for a better lifestyle or decide that they want to help out a relative. When they tell someone about it, they receive all kinds of advice, some good and some uniformed. Frequently, they choose an alternative to the reverse mortgage without considering all the costs and consequences. In this blog series, we’ll take a look at the most common alternatives to the reverse mortgage.

Selling Your Home
One alternative is to sell the home and move, pocketing the proceeds. A senior could downsize and buy a cheaper home, choose to rent an apartment, or move in with her kids. Seniors may be tempted by the promise of huge sums of cash in exchange for their home and might choose to sell rather than do a reverse mortgage.

But don't make that decision without first adding up all the costs. For the hard costs, you'll generally pay 5-6% of the sale price to real estate agents, you may owe hefty capital gains taxes on the sale, and you'll probably pay professional movers. If you downsize, your next home may have much higher property taxes because it will cost much more than you originally paid for your current home. You may need to spend a lot of money to fix up your existing home in order to sell it and/or to fix your new one to make it livable.

There are also intangible costs to consider. You'll have to find a new home where you will really be satisfied, hire a real estate agent and host open houses, and sort through and move everything that you own. You may also be moving away from all that is familiar such as friends, hospitals, pharmacies, and other services. If you're planning to rent rather than buy another home, you're losing out on future home appreciation and will be paying ever increasing rental rates. As far as moving in with the kids, I think the intangible costs are self-explanatory.

Selling your home may be a better alternative to the reverse mortgage, but make sure to add up the costs first. We’ll evaluate another common alternative tomorrow.