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Fixed Income And Refinancing

Many seniors live on a fixed income such as retirement, disability, and social security. At some point the income received becomes an amount that barely meets their needs while cost of living continues to increase and is not keeping up with income trends.
Home owners see their home as their sanctuary where they have raised their children and invested many years and memories living. Over time the physical structure of the home may need maintenance and upgrades. The homeowner may also need to consolidate some debt to lighten up the burden on their bank account. When living on a fixed income where does a senior homeowner go to access additional income without having to go back to work? Refinancing your primary residence and accessing the equity to use as income will help with paying down and eliminating debt all while providing the homeowner with additional living income without having to leave retirement.  

Planning Ahead

The average age of retirement is 65 years of age , however some retire as soon as 55. Mortality average after retirement is an additional 40 years. We are living longer and our cost of living continues to grow. Planning ahead for the golden years can help build a financial nest, but life is not always cookie cutter shaped. We do not always know what to plan for and can not predict the future. However, when the unexpected happens it is best to know your options and possible challenges. Refinancing your home can be beneficial to you in many ways. Your home’s equity can be used to pay off debt, provide income, and pay for home upgrades that make physical tasks not so tasking. Since the equity income payments are paid directly to the borrower the funds can be used for anything the homeowner chooses. Some choose to pay off medical bills, pay off debt, complete remodels, and even enjoy a much desired vacation.  

Common Financial Strain

Home owners who are retired may be faced with the question, “Where will I get the money to continue paying my home’s mortgage ?” Some may consider using their retirement savings to make monthly payments, while others may wonder about refinancing for a lower payment or even accessing the home’s equity for income. Using retirement funds can have interest and tax implications and should be discussed with a financial advisor and your loan consultant before accessing. Just like any line of credit the borrower must qualify. To qualify for a home refinance or Reverse Mortgage the borrower still needs to prove the ability to repay the loan. Qualifying for a Reverse Mortgage home loan mainly stands on the equity value on the current property and borrower’s age. Living on a fixed income means there is no other source of income to supplement the current income the individual is receiving. If a homeowner is looking to consolidate debt and secure assets through a payoff, a home refinance cashing out may be in the best interest for the client. A borrower with a larger amount of debt and feels they do not have sufficient income to live beyond the minimum expectations of just paying bills a reverse mortgage will generate regular income.  

Understanding Reverse Mortgages

A reverse mortgage is available to homeowners ages 62 and older with equity to leverage in their home. The home can be paid off or have a considerable amount of equity available for withdraw tax free. The equity is paid to the homeowner as income and is backed by the federal government. A reverse mortgage is broken into 3 categories ; a Home Equity Conversion Mortgage (HECM), Proprietary reverse mortgage, and single purpose reverse mortgage. The home has to be the primary residence of the borrower and the principal limit is based on the youngest borrower or eligible non-borrowing spouse at current interest rates. Reverse mortgages do not have to be paid back and will stay active until the last borrower or surviving spouse has passed away. Income payments come with several options, the income method must be determined during the refinancing process. The homeowner will get to choose from equal monthly payments, equal monthly payments for a fixed period of months, a line of credit that can be accessed until income runs out, a combination of a line of credit and a fixed monthly payment as long as they reside in the home, a combination of a line of credit with a fixed monthly income payment for a specified amount of months, or a HECM fixed interest rate lump sum payment one time disbursement. The homeowner is still responsible for paying property taxes, homeowners insurance, and upkeep of the property. During this type of mortgage the homeowner will not have an escrow account meaning the resident will need to mail and submit payment on their own behalf. Qualifying for a reverse mortgage requires the homeowner to be at least 62 years of age, own the home out right, or only have one lien on the home with a minimum of 60% equity in the home, , be current on property taxes, insurance, and homeowner association dues, live in a single family home, or a multi unit property with no more then four attached units, a manufactured home built after June 1976 or a townhome.  

What if I wanted to leave my home to my heir?

Some parents want to leave a home to one of their adult children. Heirs who inherit the property will need to repay the outstanding reverse mortgage balance by refinancing into a traditional loan of their own, if the heir decides to sell the home it must be done within 12 months and the remaining equity will go to the heir. Heirs will have to go through the home refinance qualification process and work along with a home lender to take possession of the home. Refinancing out of a Reverse mortgage or selling the home will take the home’s property value into consideration. If the property value drops after the Reverse mortgage has been in place the owner will not have to pay the difference. Retirement no longer has to mean living on a fixed income. You have options and can secure your homeownership without fear of losing your home due to a fixed income.  

Is a Refinance or Reverse Mortgage Right for you?

As your Home Loan Consultant I will review all your options and help you in making an educated decision. After all, you worked hard for this accomplishment and I want to help you enjoy it.


Gina Balderas