Seniors who are trying to find a way to monetize their home equity without having to leave their home now have another choice. The same goes for low-income borrowers who have yet to refinance their public loans.
First, the new option for the elderly. Typically, they tap into their equity either by refinancing or taking a reverse mortgage, which pays them an amount based on the value of their home and their expected longevity.
If they refuse, they still have to pay their housing costs and pay their taxes and insurance. When they finally leave their nest, voluntarily or not, the remaining mortgage amount must be paid in full.
With a reverse mortgage, there is no payment, but you still have to cover your taxes and insurance. When you leave, the house goes to the lender to settle your debt, and any profit left over from the sale of the place is yours or your estate. But you never owe more than the value of the house when it is sold.
Now, Texas-based Finance of America Reverse is creating what it calls a “new category” of retirement funding, combining aspects of term and reverse loans to provide borrowers at the end of their working life or at the end of their life. life greater flexibility.
New “retirement” loans
FAR President Kristen Sieffert calls the hybrid product, EquityAvail, a “retirement mortgage” – something that makes sense to those preparing to transition to life on a fixed income.
EquityAvail just launched last month and is currently only available in four states: California, Florida, New Jersey, and Virginia. But the plan is to make it available in at least 15 states within 12 months, Sieffert told me in a phone interview.
EquityAvail is a proprietary fixed rate product with a minimum loan amount of $ 100,000 and a maximum of $ 4 million. Since government-insured reverse mortgages, better known as Home Equity Conversion Mortgages (HECMs), currently have an upper limit of $ 822,375, you may be able to withdraw more. money out of your house that way.
Additionally, while a typical reverse mortgage may have a maximum loan-to-value ratio of 55%, EquityAvail is a bit higher between 60% and 65%, depending on the age of the borrower.
“We can go higher because the borrower is making payments,” Sieffert said.
The product is distributed at the close. Borrowers are required to make payments for 10 years, but the monthly cost is about half of what it would be for a typical refi, according to Sieffert. This is because EquityAvail is a negative amortizing loan in which the principal increases rather than decreases. In this regard, it looks like a reverse mortgage.
Alternative to reverse mortgage
Once the loan is on the books for a decade, it looks even more like a reverse mortgage because you no longer need to pay back principal and interest. Again, however, you still have to pay your taxes and insurance.
Borrowers must be at least 60 years old to be eligible, compared to 62 for an HECM. So this means that you will have to pay your house payments until you are at least 70 years old. But it’s better than a regular refi, which can force you for 15, 20, or even 30 years. The FAR are considering lowering the age requirement so that early retirees can apply, as well as those forced into retirement and other interested parties.
The balance must be paid when you die or when the house no longer serves as your primary residence, but you never owe more than the value of the house. And unlike pure reverse mortgages, there are no origination fees or monthly management fees.
FAR, which is owned by global investment firm Blackstone Group, said it created the new loan when it identified a need that was not being met by traditional loans or reverse mortgages.
GSEs offer Refi incentives
Meanwhile, low-income borrowers whose mortgages are owned or controlled by Fannie Mae or Freddie Mac are now able to refinance into cheaper loans. The two government-sponsored companies will even pay $ 500 to pay for an assessment if needed. And if you run out of cash for closing costs, you could accumulate up to $ 5,000 in the loan amount.
Fannie and Freddie’s regulator, the Federal Housing Finance Agency, estimates that by using the new option, the more than 2 million low-income families who have yet to take advantage of near record mortgage rates today will save over $ 250 per month. – $ 3,000 per year.
The loan will be available through Fannie this month; Freddie is shooting for August. To be eligible, borrowers must occupy the home, have income equal to or less than 80% of the area’s median, and have not missed any payments in the past six months (or no more than one payment in the past six months). Last 12). Additionally, debt-to-income ratios cannot exceed 65% and credit scores must be 620 or higher.
Lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous housing magazines and to housing and housing finance industry publications. Readers can contact him at [email protected]