For a Reverse Mortgage Equity is Paramount

reverse mortgage

Getting a Reverse Mortgage Requires Substantial Equity

On a daily basis we get inquiries from folks that want and need to get a reverse mortgage. However, many people do not know what the first…and most important ingredient is in qualifying for a reverse mortgage loan.

That “secret sauce” ingredient is…HOME EQUITY!

Many people are confused because they hear commercials on radio and television or see ads in their local newspaper encouraging people 62 or older to get a reverse mortgage. Somewhere along the line, the only part of the commercial or ad that sticks in people’s minds is the age 62 or older part. People are not hearing the rest of the message regarding how to qualify for a reverse mortgage.

It’s heartbreaking to have folks call and email saying things like: “I thought this was a government program to help senior citizens.” or “If the government can bail out the banks, why aren’t they helping senior citizens at risk of losing their homes?”

Although we completely empathize with those sentiments, the fact of the matter is, reverse mortgage eligibility has always required A LOT OF HOME EQUITY….in fact depending on your age, anywhere from 40 to 60% equity is needed to qualify.

A Reverse Mortgage is a Deferred Interest Loan

This means that the money you borrow using a reverse mortgage will accumulate interest over the number of years that you are alive and continue to live in your home. If your life expectancy is 20+ years from the time you take out a reverse mortgage, the amount of interest that will build up over 20+ years will be substantial.

Lenders try to estimate what your home will be worth versus the total amount of principal and interest that will accumulate over your expected lifetime. They try to make an educated guess about how much money they can lend you today, factor in the deferred interest accumulation over your expected lifetime, and try not to be “underwater” by the time the loan has to be paid off through the sale or refinance of your home by your heirs at the end of your life.

Future Housing Values

These are treacherous times for sure, not only for all of us citizens but for reverse mortgage lenders too. There is tremendous uncertainty about where housing values are going in the future. Are they still declining, will we ever see the values from 2002-2006 again? Maybe…maybe not.

If you’re interested, here is an article naming the 10 U.S. cities that have the highest number of “underwater” homes, (meaning, more is owed on the homes than the homes are worth.) As you would expect, almost all of these same cities also have higher unemployment rates than the national unemployment rate, which is currently just under 9%.

If you would like to find out if you have enough equity in your home to qualify for a reverse mortgage loan, please request an evaluation today. We are happy to run the numbers for you without any obligation on your part.

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