In this issue of the Financial News, I will give a general outline to Reverse Mortgages and provide contact information for Cheri Kelly-Michno, Reverse Mortgage Specialist at Sandy Spring Bank.

A Reverse Mortgage is a special loan whereby a homeowner converts part of the equity in their home into cash without having to sell their home or take on additional monthly bills.  This cash is generally tax free (checking with a tax advisor is advised) and can be used for many reasons – retirement expenses, grandchildren’s college education, long term care expenses, eliminating a monthly mortgage payment, travel, etc.

To be eligible the client must be at least 62 years old and occupy their primary residence. There must be at least 60% equity remaining in their home with all existing liens paid off at the time of settlement.  There are no income, employment or credit requirements that must be met since the individual is pulling money out of their home, and unlike a typical loan, does not have to make any payments until the home is sold.  The amount available is based on a formula that takes into account the age of the youngest borrower, the interest rate, the home’s appraised value and the county in which the property is located.  Cheri can help a client with this calculation.

The Reverse Mortgage is based on a lien being placed on the property for the amount withdrawn plus interest and fees that will be repaid when the property is sold.  The amount owed can also be paid back from other sources such as the beneficiary of the property when the client passes away.  The client does maintain ownership of the property and the proceeds from the loan can be used for any purpose.  The client can receive the money in a lump sum, through monthly payments or through a line of credit with options as to when and how the money is received.

There are closing costs such as origination fees, title insurance, appraisals, mortgage insurance and attorney fees and these costs are incorporated into the loan.  The interest rate is adjustable and linked to the one-year Treasury Security Rate but again, there are no payments to be made, so rising interest rates, will increase the amount owed when the home is sold, will not affect cash flow since the client is not making loan payments.

Summary

Reverse Mortgages are an option for clients who own their home and wish to tap into the equity of their home without selling the residence or taking out a loan or a line of credit that would require income verification, credit approval and the ability to make payments on the loan.  In the right situation, this can provide great flexibility to a client who needs additional cash or income.

It is important that the client fully understand all of the options and costs associated with a Reverse Mortgage so that an educated decision can be made.  For additional information or for assistance with questions concerning Reverse Mortgages, please contact Cheri Kelly-Michno, Reverse Mortgage Specialist, at 301 617-4236 or via email at cmichno@sandyspringbank.com.

Cheri would be happy to assist you.  As always if I can help you with your estate planning and financial issues, please contact me at 301 785-4112 or at pfish@sandyspringbank.com.