With home values on the rise, many senior homeowners may be wondering how they can access the equity in their homes.1 One way to tap into home equity is with a Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage.
Higher Home Value = More Proceeds
When home values increase, the home’s equity has probably increased too; consequently, senior borrowers may be able access these funds with a reverse mortgage loan. A reverse mortgage is a Federal Housing Administration (FHA) insured loan2 for homeowners who are 62 years and older. Below are few factors that are used to determine the amount a borrower can receive.
- Age of the youngest borrower on title or eligible non-borrowing spouse3
- The lesser of the appraised value of your home, sales price, or the FHA lending limit ($765,600 as of 1/1/2020)
- Current interest rates
- Balance of your existing mortgage, if applicable, and other financial obligations
Refinance a Reverse Mortgage
With home values higher, now is a great time to refinance a reverse mortgage with a HECM to HECM Refi, or HECM to JUMBO Refi. If a borrower currently has a reverse mortgage, and there is a benefit, they can refinance their loan by replacing their existing reverse mortgage with a new one. By refinancing a HECM loan, homeowners may be able to access additional funds that weren’t available with their current loan due to the home gaining equity and/or because the borrower(s) have gotten older.
Some borrowers have seen their home values skyrocket, or were restricted to a lower maximum claim amount because of the HECM loan limit, and a HECM to Jumbo refinance may be a more suitable refinance option. A jumbo reverse mortgage can allow senior homeowners access to a portion of their home’s equity up to $4,000,000 (depending on the lender).
Benefits of Refinancing a HECM
- Access to additional loan proceeds
- Rates are lower than your current mortgage
- Desire to change loan type (Fixed or Adjustable) or disbursement options
- Increased loan limits
Line of Credit, and Growth
With homes appreciating in value, this might be a great time to secure a line of credit. A reverse mortgage line of credit option can convert a borrower’s home equity into funds with the possibility of the funds from a line of credit appreciating over time.4 Borrowers can withdraw from a line of credit at any time and what isn’t withdrawn, will continue to grow. The longer the line of credit is not used, the more growth potential there is.
With a reverse mortgage line of credit, the unused portion of the credit line grows over time, outside of the home’s value. This means that the less that is taken out upfront, the more that will be available to borrow later on. As long as the loan obligations continue to be met, the reverse mortgage line of credit will not be reduced.
Are you interested in learning if your home’s value has increased and if a reverse mortgage may be an option? Call (800) 976-6211 to speak with a licensed loan advisor to see if a reverse mortgage can benefit you.
Disclosures
1 https://www.noradarealestate.com/blog/housing-market-predictions/
2 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
3A spouse must meet the following requirements to be considered eligible: 1) Be the spouse of the reverse mortgage borrower at the time of loan closing and remain the spouse of the borrower for the duration of the borrower’s lifetime. 2) Be properly disclosed to the lender at origination and specifically named as a Non-Borrowing Spouse in the loan documents. 3) Occupy, and continue to occupy, the property securing the reverse mortgage as the principal residence.
4 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.