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Can You Do A Reverse Mortgage With Existing Mortgage Loans? ( With Reverse Mortgage Examples )?

Reverse Mortgage With Existing Mortgage

Often times older homeowners wonder, “Can You Do A Reverse Mortgage With Existing Mortgage Loans?”.  The simple answer is Yes, you

Reverse Mortgage With Existing Mortgage
Reverse Mortgage With Existing Mortgage

can do a reverse mortgage with existing mortgage liens.  However, that’s not always the case.  Basically, you can do a reverse mortgage loan if your home is free and clear and / or if you have existing mortgage loans.  We’ll discuss not only when you can do it, but also when you cannot do a reverse mortgage with existing mortgage loans.

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First, What Is A Reverse Mortgage?

A reverse mortgage is a special type of residential home loan designed for homeowners aged 60 and older.  ***Note***, Until June of 2018 the minimum age requirement was age 62 plus.  However, a new product was launched in June of 2018 that caters to homeowners aged 60 plus, which is very exciting (not available in all states). The cornerstone of a reverse mortgage is that you can borrow the money and NOT have a mortgage payment due for as long as you live.

Keep in mind that at present, a reverse mortgage can only be done on your primary residence.  If you move out permanently, the loan does become due.  Otherwise, it does not become due until all reverse mortgage borrowers pass away.  The homeowner still owns their home just like a regular loan, so you’ll need to pay property taxes.  You’ll also need to have a homeowner insurance policy.  There’s just no principal and interest payment like a regular loan.

Reverse Mortgage Example (basic scenario info) #1

Meet John Doe.  John Doe was born on September 14, 1944  He’ll be 74 this year.  John also has a home that is worth $280,000.00.  Mr. Doe took out a 20 year loan at 5.5% back in 2004 for $240,000.  His current loan balance is about $80,000.00 and his payment is $1651 (not including taxes and insurance).  At the time John was making about $6800 per month, so the payment was easy to make.  John ended up retiring earlier than he thought and has blown through all of his savings (except the last $20,000.00).  He now is only making $1850 from social security and has a $1400 pension for a grand total of $3250.  His taxes and insurance add up to about $300 per month, so his total housing payment adds up to $1951.  This only leaves him $1299 per month for all the other stuff like food, utilities, a $320 car note, etc.  That doesn’t go far.  However, eliminating his $1651 principal and interest payment reduces his expenses immensely.

Reverse Mortgage Example
Reverse Mortgage Example

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Here is what a reverse mortgage example looks like at his age:

Home Value – $280,000

Current lien – $80,000

Age – 74

Available loan $129,920 – $146,720 (the amount you get depends on the way it’s structured, the closing costs, and interest rates during the week you apply).

For this example, we’ll use the lower closing cost option and lower loan amount option of $129,920.00.

Loan amount for this example – $129,920.00

Cost breakdown:

FHA Mortgage Insurance – $5600.00 (it’s 2% of the appraised value)

Origination Fee – $4800 (could vary per lender).

3rd party charges – $2200.00 (varies depending on the state you live in).

Margin – 2.5%

Lien Payoff – 80,000.00.

After subtracting all the closing costs and lien from the total loan of $129,920.00, there was $37,226 left over.  However, since the margin is higher, the lender can waive the $4800 origination charge.  Hence, this brings the left over cash up to $42,026.00. (note – not all lenders will do this).

John Doe can use this money however he likes.  The choices are to get a monthly payment sent to him, take lump sum distributions, or leave it in a line of credit.  He can also do a combination of the aforementioned options.

This is a perfect example of someone being able to do a reverse mortgage with existing mortgage loans.

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Reverse Mortgage Examples (basic scenario info) #2

Let’s use all the same variables as above.  It’s John Doe again, BUT instead of owing $80,000.00, he owes $170,000.00.  He’ll also have to go with the option that yields the highest loan amount of $146,720.00.  Hence, since it will have a really low margin, the lender probably won’t be able to make any pricing concessions like waiving the origination charge.

Here is what a reverse mortgage example looks like at his age and with the new lien amount of

Reverse Mortgage Examples
Reverse Mortgage Examples

$170,000.00:

Home Value – $280,000

Current lien – $170,000

Age – 74

Available loan – $146,720

Cost breakdown:

FHA Mortgage Insurance – $5600.00 (it’s 2% of the appraised value)

Origination Fee – $4800 (could vary per lender).

3rd party charges – $2200.00 (varies depending on the state you live in).

Margin – 1.375%

Remaining loan proceeds after closing costs – $134,120.00.

Lien Payoff – $170,000.

The current loan of $170,000 needs to be paid off in full.  The problem is, the $134,120.00 that remains isn’t enough to pay off the $170,000 loan balance.  It’s about $35,880 short.  Now, if John Doe had that kind of money sitting around, he could bring it to closing and eliminate his mortgage payment for life.  However, as you recall, John only had about $20,000.00 left in savings.

This is a perfect reverse mortgage example of someone NOT being able to do a reverse mortgage with existing mortgage loans.

Ultimately, you can do a reverse mortgage with existing mortgage loans or without existing mortgage loans.  It just depends on how much you owe, how much you get on the reverse mortgage, and if you have cash to bring to the table for a shortfall.

GET YOUR FREE INFO KIT! EMAIL US AT  Info@ReverseMortgageLoanAdvisors.com

For more in depth info on all Reverse Mortgage subjects, check out

www.reversemortgagecalifornia.biz 

www.reversemortgageloanadvisors.com

Reverse Mortgage Frequently Asked Questions

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