Kevin's Corner

Access Your Home Equity Program

It’s all about making it last, money that is, for as long as you can. No kidding. Many potential clients have contacted us with that problem, so lets spend a little time considering how the built up equity in your home can help solve this problem.

Home equity has traditionally not been considered a source of funds to help pay for retirement but escalating home values and desires to maintain an independent lifestyle have driven many retired homeowners to investigate how they draw out home equity without selling their home. In the past the only choice was to sell the “big house” then purchase a smaller “retirement house” and bank the balance. But what if you don’t to move or downsize? What are the options?

The mortgage industry has been quite creative over the years and offer products that allow homeowners to borrower their home equity. Unfortunately, home equity does not do anyone any good unless you have a vehicle to withdraw it, so the mortgage industry options are the most popular. Let’s consider some of these products: 

• Interest-only, fixed term home equity lines of credit. To utilize this option, you have to credit qualify to get it.  Good credit, a source of income and strong credit ratings are needed. You also have to make payments and interest rates can be variable. However, if you take enough money out and set it aside, the payments can be made with the reserved funds. It just takes discipline. Also, this can used as part of the “two step” strategy mentioned below.
• Option ARMs. This option allows you to set the payment at an amount lower than the actual interest rate would provide for. Since you are not paying all of the interest each payment, the “shortfall” is added back to your loan balance. This is referred to as a negative amortizing loan. The payments are normally adjusted in a set period such as every 12, 36 or 60 months and there is a limit to how much unpaid interest can be added to the loan. This option can be used as part of a “two step” strategy when it is combined with a reverse mortgage. You can take out an Option ARM first, which is cheaper to set up then when you use up all of the accumulated interest shortfall allowed, a reverse mortgage is taken out to pay off the Option ARM and eliminate the monthly payment all together.
• Family, charitable trust, and intergenerational loans. These types of loans allow homeowners to “restructure” the ownership of the home and allow the retired homeowner to give up some control over the property in exchange for some cash today. These can be quite complicated and in some cases the transfer of control is irreversible.
• Reverse mortgages. To qualify for these products you have to be 62 or older and not have too much mortgage debt already. The FHA Home Equity Conversion Mortgage is by far the most popular program because of its high equity payouts, low interest rate structure and flexible pay out programs. The minus are the high upfront costs but they can be financed into the loan from the start. Reverse mortgages do not require any interest or principal payments and repayment of the loan is deferred until the homeowners permanently leave the home. There is no change of ownership and the homeowners continue to pay property taxes and maintain their homeowners insurance. Since there are no monthly payments required, the loan balance increases over time as the unpaid interest accumulates until the loan is repaid.

I am finding that many retired homeowners are looking for solutions but are not ready to commit to a reverse mortgage which is why Kastle Mortgage is offering Access Your Home Equity program. This is a “two step” program for qualified applicants that will combine an Option ARM and Reverse Mortgage so you can access your home equity in an efficient, cost effective manner. This program does require a qualification process and is ideal for homeowners 62 and older that own their home free and clear. Call us today to find out how the Kastle Mortgage Access Your Home Equity program will benefit you!! 1-800-496-4035 Today!!

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