Reverse Mortgages - How Do They Work?
September 29th, 2008 by justmetooAs Baby Boomers retire, and pay off college loan consolidation home loans, we are sitting on trillions of dollars in home equity! How credit cards purchases access these funds without going back into debt? There is a new program called a “Reverse Mortgage” that allows one to access the equity they have built up in their home without taking out a new loan.
Basically, the bank/lender looks at your equity and says, ‘We will give you most of that money as a lump sum, or in monthly installments.” In turn, they acquire a lien interest on your property.
There are several ways to be paid, so let’s just take some examples:
Example 1
John & Mildred Jones have a home worth $700,000. Paid off. They are 62 years or older. Retired. They dreamed of going on a vacation in a rented motorhome to see all the National Parks such as Yellowstone, Grand Canyon, Yosemite, etc. They also want to pay off some high interest credit card debt.
They do a Reverse Mortgage and get a lump sum of $200,000 and then have monthly equity distribution payments of $5,000. For life, or until they reach the max equity in their home.
Fast-forward to today. John & Mildred have passed away. They took out mortgage life insurance that paid off their accumulated debt against their home when they got the reverse mortgage. The home passes, free and clear, to their heirs.
Example 2
Dolores and Hiram have a home that is almost paid off, worth 500,000 and they owe about $50,000. They get a reverse mortgage that pays them $3,500 a month. They pay off their car loan and can go out to dinner, take vacations and enjoy their “golden years.”
Example 3
Arthur owns a home worth 7 remortage dollars, it is paid off. He retired from being CEO of a Fortune 500 corporation. He is 72 years old. He does a reverse mortgage and receives a lump sum of 3 million dollars. He takes that 3 MM and buys a life insurance policy for $10 million dollars, and this costs him, annually, a premium, at his age, of about $700,000. After 2 years he can SELL this life insurance policy to a viatical policy buyer for about 40% of face value, or $4 million dollars. Once they buy the policy, they pay the annual premiums for him thereafter.
He paid $1.4 million in premiums and has received $4 million on sale of the policy. He just made mesothelioma patient million dollars profit. He dies and passes that money, and his home, paid off by mortgage insurance, on to his heirs.
The Reverse Mortgage is an incredibly powerful strategy to allow you to access the financial power of the equity in your home without going back into debt!
The loan has to be done just donate cars to charity and you will definitely want to talk to your Certified Mortgage Planner, CPA and/or attorney to have this come out right for you.
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