Originally posted on "Retire to Washington" September 28th, 2021by Rod Sager
The Reverse Mortgage as a purchase tool in the current market is perhaps stronger than ever before. With rates under 3% possible and inflation at record levels, this product is a solid tool for any retiree with some cash on hand or large amounts of equity. Generally a younger retiree, say 65 years old will need at least half the purchase price in cash. Selling a home with a large amount of equity and downsizing can lead to a large down on the new house. Now the retiree can live in the house indefinitely without paying a mortgage payment. In some cases if the property was free an clear, the bank will pay a monthly payment to the homeowner indefinitely. The low interest rates make reverse mortgages an attractive alternative to more conventional financing methods. It is not for everyone, so borrowers should consult a trusted mortgage professional.
The premise is this: Borrower puts a large down payment or refinances a free and clear property. The older the borrower the more flexible the terms. Generally 50% down is a minimum requirement. The borrower makes no payments. The interest accrues as normal so every month a little bit more interest is applied as the loan balance grows. When the borrower leaves the residence, the bank collects the full amount of the balance. Typically this would be done by selling the house and paying off the mortgage with the proceeds. Any left over amount after closing would be returned to the borrower or to heirs. Retiring without a mortgage is a nice idea and some may not be able to buy a house completely free and clear. The reverse mortgage allows the borrower to have no payment and that can be rather reassuring especially in the hyper-inflation scenario we see brewing right now.