Who Wants Reverse Mortgage Information? Why? And, What Can They Get from These Loans?
Is your home a pot of gold at the end of a rainbow?
Who are these people? What does a reverse mortgage offer them? Why are they researching the loans? Find out if they are anything like you…
Who is Researching Reverse Mortgages?
Of the tens of thousands of people who got a reverse mortgage estimate on NewRetirement, nearly two thirds were qualified for the product — meaning that they could get a reverse mortgage if they chose to apply. To qualify for a reverse mortgage, the primary borrower must be 62 years old or older and have sufficient home equity.
Of the one third who did not qualify for a reverse mortgage, 75 percent did not have enough equity in their home. The other 25 percent were too young.
The median age of a user who is qualified for a reverse mortgage using the reverse mortgage calculator on NewRetirement is 69 years old.
What Does a Reverse Mortgage Offer? How Much Money Can People Get with a Reverse Mortgage?
The amount you can borrow is based on your home’s value, your age (and the age of your spouse if applicable) and interest rates.
For those just turning 62, you may only be able to borrow 50 percent of either your home’s value or $765,600 (whichever is less). Someone closer to 90 years old could borrow up to 75 percent.
How Valuable Are People’s Homes?
The median home value of users of the Reverse Mortgage Calculator is $205,000. This means that half of the home values of people seeking a reverse mortgage estimate were higher than $205,000 and half were lower. As a comparison, Zillow reports that the median home value as of June 2016 in the United States is $180,100.
So people interested in a Reverse Mortgage may have slightly more valuable homes than the national median. (And, many prospective reverse mortgage borrowers have homes valued at $2.5 million and above.)
How Much Are People Able to Borrow with a Reverse Mortgage?
Of the people using the Reverse Mortgage Calculator on NewRetirement, the average loan estimate (the amount available for borrowing) was $101,951.
However, it is important to understand that with a reverse mortgage, you do not necessarily get all of your loan amount in cash.
Qualified reverse mortgage loan borrowers are required to pay off their traditional mortgage using their reverse mortgage proceeds — this eliminates future monthly mortgage payments for reverse mortgage borrowers.
- 45 percent of people using the calculator had a traditional mortgage.
- 55 percent owned their homes outright — they did not have any mortgage balance.
So how much cash could people interested in a reverse mortgage potentially receive?
Prospective borrowers with a traditional mortgage: These prospective borrowers had a median home value of $235,000 and a median mortgage balance of $67,500.
- The median total loan estimate for people who have a traditional mortgage is: $99,526.
- These borrowers are able to pay off their existing mortgages and eliminate monthly mortgage payments which improves their cash flow.
- After paying off existing loan obligations, they still had an average cash benefit (or line of credit) that they could access was $33,915.
Prospective borrowers who own their homes outright: The median home value of borrowers who did not have an outstanding mortgage is $197,500 (this is $57,000 lower than the median home value of people who still owe money on their homes).
- The average cash benefit (or line of credit) that these borrowers could access was $86,065.
For some borrowers, the real benefit is paying off the existing mortgage and eliminating monthly mortgage payments. For other borrowers, the available cash is more important. The cash or line of credit that is available can be used however the borrower wants:
- As a reserve, held in the line of credit
- Home repairs
- Money to help with monthly cash flow or to improve quality of life
Why Are People Researching Reverse Mortgages?
Of the people who have used the NewRetirement Reverse Mortgage Calculator, 33 percent reported that they were researching their loan amounts out of curiosity.
However, the majority have specific ideas about how they might use a reverse mortgage:
- Around 26 percent of the respondents were most interested in paying for everyday expenses, preparing for emergencies, or paying off other debts.
- 19 percent wanted information on the loan to improve their quality of life.
- 12 percent were most interested in paying off their current mortgage.
- 10 percent wanted to make repairs or improvements on their home.
The good news is that these loans can enable qualified borrowers to accomplish any of those goals.
What is a Reverse Mortgage?
Reverse mortgages have been gaining popularity over the last 10 years as retirees find that their home equity can improve monthly cash flow or provide another source of money to maximize overall wealth.
A reverse mortgage is a loan. You are borrowing your own home equity (like you do when you get a home equity loan). However, there are big differences between a home equity loan and a reverse mortgage. With a home equity loan, you borrow your home equity at a certain interest rate and term. You can figure out from the beginning exactly how much you pay every month and for how long.
With a reverse mortgage there are no monthly mortgage payments and you accumulate interest on the loan. For any money that you use from the reverse mortgage, you accumulate interest so the loan amount grows over time. However, you are allowed to stay in the home for as long as you live — no matter how large the loan becomes.
You pay back the loan when you die or permanently move out of the home. When the loan comes due, you owe the value of the loan or the value of the home — whichever is less.
Reverse mortgages are not for everyone, but if you want to stay in your home and would like more wiggle room in your finances, then getting a reverse mortgage estimate might be a good idea.