Buying a Home Only to Buy a Reverse Mortgage
A Home Buying Article Contributed by Robert Scalia
Learning to Take Full Advantage of a Reverse Mortgage.
Imagine the above scenario: You are 64 years and so is your wife. The two of you therefore qualify for a reverse mortgage on your present house, but you no longer want to live in that house.
Is it actually possible for you to take out a mortgage on a new home, and then turn around and take out a reverse mortgage on that same property. Is this even financial feasible?
When a Reverse Mortgage is Really What You Want
In this case, you can take out a reverse mortgage, but you have to keep in mind that you will have to make a sizeable down payment on the new house first. When you take out a reverse mortgage, one of the stipulations is that you repay any existing forward mortgages on the house.
How do you do this? Well, you do this by drawing a lump sum under your reverse mortgage which is equal to the balance of the forward mortgage. In order for this to work, you have to make sure that the balance must be smaller than the amount you can draw under a reverse mortgage.
Let's say that you paid $200, 000 for your new house. If you are over 64, you can probably secure about $105, 000 with a reverse mortgage. Now let's say you took out a forward mortgage of $160, 000 to buy the house. In this case, you would be ineligible for a second mortgage. But if you took out a forward mortgage of $100, 000, you could then pay that off by drawing from your second mortgage. But keep in mind that you would only have about $5, 000 left for other purposes.
Given This Situation, Does a Reverse Mortgage Even Make Sense?
Well, that will actually depend on what you're looking for.
I'n not saying you shouldn't do it. Keep in mind that eliminating the forward mortgage means you will be eliminating the monthly payment on that mortgage. That will then free up your income for other purposes. And that extra 5, 000 dollars will be growing by about 4-5% a year, which is a little bit of extra money to play around with.
Obviously, things don't work out as well unless the down payment on your next house is 5fifty per cent or more. Keep in mind that you can only draw up about $105, 000 on a $200, 000 house. Why? Because in reverse mortgage terms, you are very young, which means the reverse mortgage lender is going to have to wait a long time before they will see their money again.
If you were both going on 75, that would be a different story altogether. You could probably draw over $120, 000 in that case, which means you would only need to put 40% down. So when it comes right down to it, your age is a big factor in your final decision. the older you arem the more appealing a reverse mortgage becomes.
