We owe approximately $280,000 on our mortgage (up to date and never missed any payments) and my estimated appraisal is $480,000 which means I have approximately $200,000 in equity? If I took out $70,000, I now have approximately $130,000 remaining equity? If I take out the $70,000 will the company/bank doing the cash out include my $280,000 + the $70,000 in the cash transaction? What will my payments be to the company/Bank be and at what APR be? Thanks, Roy
I think I need to answer this in reverse order for you. There are no payments required with a reverse mortgage. You can make a payment at any time if you wish and there is never a prepayment penalty, but there is never a mortgage payment required if you live in the home as your primary residence and you pay the taxes, insurance, and any other property charges if any in a timely manner (i.e., HOA dues, etc.).
So, there are no payments due to the bank while you still live in the home and once you move out of the property, then the entire outstanding balance becomes due and payable. You can view daily rates for reverse mortgages by comparing our top lender list but please remember that interest rates are not locked on a reverse mortgage until you go to closing.
You do lock the Expected Rate for 120 days from application which means that you would lock the amount of money you will receive but the interest rate at which you accrue interest is not locked until you are ready to close for the adjustable rate line of credit and the Expected Rate is the same as the Note Rate for the fixed rate loan so it is locked when you are ready to close your loan.
The reason I chose to go in reverse order is that your other two questions may not be answerable. All other loans must be paid in full with the proceeds of the reverse mortgage (if any) so the answer to question number two is that your new balance on the reverse mortgage would also refinance any existing balances you have outstanding on your home. Your initial loan balance would include all fees to start the loan plus any loans you have that needed to be refinanced with the reverse mortgage to make it the only lien on title. But with the equity requirements of a reverse mortgage and the recent rises in interest rates, I am afraid that there is almost no scenario that would allow you to pay off the loan you mention and take an additional $70,000 leaving you with the $130,000 equity or 73% loan to the value of the property with a reverse mortgage. Your first question is correct, that would give you approximately 41.6% equity which may not be sufficient to obtain a reverse mortgage.
Rising rates affect the amount available
Reverse mortgages use several factors to determine the amount of money a borrower will get for their circumstances based on the age of the youngest borrower, the interest rates at the time and the value of the home or the HUD maximum lending limit, whichever is less. The maximum lending limit is currently $970,800 so it would be based on your property value, the age of the youngest borrower and the interest rates in effect. Unfortunately, the rates have increased significantly over the past 9 months and so borrowers are receiving much less from the program now than they did just one year ago. Without knowing your ages or your property location (different areas of the country have different costs for title insurance, state fees, etc.), I can tell you that if you are 62 and living in one of the lowest cost states such as Arizona, you would be a little over $118,000 short of the amount necessary just to close the loan at today’s rates. However, if the younger spouse between you and your wife is 92 years of age, you would have enough to close the loan, payoff your existing mortgage and would also receive approximately $22,000+/- at today’s rates and fees (you would not be able to take the $70,000 you suggest in any case under today’s circumstances).
So, does that mean that a reverse mortgage is out?
Not necessarily. Firstly, rates go up and they go down. If you can close the loan today, you can end your current loan and your mortgage payments and that might be enough to keep you solvent or at least keep you from having to liquidate other assets while the market is down. Secondly, reverse mortgages can be refinanced later if rates do come back down. Thousands and thousands of borrowers have refinanced over the past few years that first received their loans at a time when rates were last up or before property values began to rise. Does that mean you should do a reverse mortgage if you must rely on a future refinance? No. If the loan will not resolve your needs then do not put yourself in a bind because no one can assure you of what future rates will do but if a future rate reduction will only make things even better, feel secure in the knowledge that you can take advantage of it when it comes (do remember that you will need to qualify at that time so make sure you pay your taxes, insurance and all other property payments on time).
Compare Lenders Closing Costs
Compare what the cost of the loan versus what the cost of a move are and decide for yourself what works better for you. Some borrowers feel they would not get enough, and it would be better for them to move but once they did the math and realized what a move would cost, the reverse mortgage still made sense for most of them (but again, it must meet your needs, or it is just a band aid that won’t last).
We would invite you to go to our free calculator to see what you can expect from a reverse mortgage to see if it is right for you. Our calculator is easy to use, it will give you real time programs and costs for different areas of the country and there is never any obligation to look. If you are currently working with a company and want to see if you are getting a solid quote, it also never hurts to compare!