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When making decisions about whether to use or purchase financial products, there’s no substitute for accurate information and knowledgeable help. As financial products have increased in complexity, advice to consumers - if you don’t understand it, don’t buy it - applies more today than it did a decade ago.
That’s what Kathy and John McKee of Arlington Capital’s reverse mortgage division do - provide people with the information needed to determine if a reverse mortgage is the right tool for them.
“The average borrower is roughly 70 years old, female, generally single, with a $250,000 home and a $70,000 mortgage,” John said.
The McKees have been providing reverse mortgage services for eight years. Arlington Capital has offices in 30 states and works with several banks, which they said results in lender-borrower relationships that are more compatible.
Reverse mortgages, as with most financial products, have requirements, rules and a few myths associated with them. The first requirement is that a homeowner must be 62 years old to qualify. Homeowners can use proceeds from a reverse mortgage in any way they choose.
“With a regular mortgage you make payments every month and your balance goes down. But with a reverse mortgage you make no payments, however, the balance goes up.
“The good news is that we only lend a portion of the equity and the value of your house is going up as well. You will always have more value in the home than you will ever owe the bank,” Kathy said.
But even if a home’s value for some reason plummets, (as an example she used nuclear power plant becoming a next-door neighbor) the Federal Housing Administration [FHA] insures that homeowners never owe mortgages that would exceed the home’s selling price.
Dispelling one myth, McKee said reverse mortgages are nonrecourse loans. If a borrower couldn’t sell the house for what is owned, the bank can’t touch any other assets. It can’t take savings, individual retirement accounts, certificates of deposit or those type investments, she said.
The ability to protect the nonhome assets can be important to homeowners and their heirs, Kathy said.
“If the homeowner continues to live in the house and wants to pass it on to heirs, the heirs become owners. The bank never takes the house,” she said.
She said heirs could sell the home, satisfying the mortgage, and keep any remaining proceeds; or they could refinance the balance owed, obtain a mortgage and keep the home.
“If you’re the owner, the senior, you can sell the house at any time, take the proceeds and move on,” she said.
In the case of a married couple, if one leaves the home, nothing changes. “The deal is still on. The spouse gets to live in the house, keeps the money, and is the owner of the house and can never be put out,” McKee said.
She said for some, a reverse mortgage could also be the antidote to foreclosure.
“Most people are facing foreclosure because they can’t make their mortgage payments. With a reverse mortgage you’re not required to make any payments,” McKee said.
She said proceeds from a reverse mortgage are tax-free because the money is from equity and is not earned income.
Proceeds could be taken as a lump sum, as a monthly direct deposit, or as a line of credit.
“A credit line is nice because it grows. It doesn’t grow like a savings account but it grows as the value of your home increases. You don’t owe money unless you use it,” McKee said.
“It’s sort of like a peach tree. You pick peaches and some peaches grow back,” John said. He said nearly half of most people’s retirement assets is the value of their home. The other half of assets - typically cash, retirement accounts, and stocks and bonds - have been shrinking as the economy has slowed.
He said the nonhome assets would also be subject to tax but not the proceeds from a reverse mortgage.
“In their homes there’s an enormous pile of wealth available to many seniors who are otherwise struggling as the costs of things skyrocket,” John said.
A mortgage-free homeowner could use proceeds from a reverse mortgage for any purpose. A homeowner who still has a mortgage could use the money to pay the mortgage off, freeing money for other things, Kathy said.
She said applying for a reverse mortgage is free, there are no hidden fees or service charges, and no obligation to use Arlington Capital.
There’s one thing Kathy McKee said she’s noticed after clients receive reverse mortgage proceeds.
“No one ever gives the money back,” she said.
For additional information on Arlington Capital call the McKees toll free at 866-546-0657.
The office is at 37366 Shelter Drive, Selbyville.
www.arlingtonreverse.com
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