Question: Regarding the 80-something person that wrote to you that they are forced to sell their condo because her dues had been raised another $55: I don’t understand why you wouldn’t have brought up the option to them to apply for a reverse mortgage, since they have fully paid for their home. Maybe there is a good reason that this won’t work, but I feel we need to try for their sake to allow them to stay in their home if at all possible.
J. P., Everett
Answer: You make a good point. I focused on answering her specific questions and did not suggest the option of a reverse mortgage to stay in her condo instead of selling it. So consider this to be an addendum to last week’s column. In that column, a woman who owned her condominium free and clear and is living on a fixed income was very upset because she had just learned that her monthly homeowner dues were being increased and the extra housing expense was high enough to drive her out of her home.
She asked if there was anything she could do to prevent the monthly fee increase and I explained that condominium rules require all homeowners to bear a proportional share of the maintenance expense of the property.
Because she can’t afford the higher monthly dues, she is trying to sell her condo. But another option is a reverse mortgage.
First, here’s a quick explanation of how a reverse mortgage works: A reverse mortgage is a special loan program that allows older homeowners to pull cash out of their home’s equity without making payments. As its name implies, a reverse mortgage is the opposite of a regular mortgage. Instead of borrowing a sum of money and paying it back over time to reduce the debt, with a reverse mortgage, a sum of money is given to the borrower but no payments are made and debt grows larger and larger each year.
The equity can be pulled out of the home either in one lump sum or paid out gradually in guaranteed monthly payments for life. The unpaid interest is added to the loan balance each month. The total loan balance, with accumulated interest, is eventually paid off when the home is sold, typically after the owner’s death.
The amount of money that can be borrowed on a reverse mortgage is determined by four factors:
* The value of the home.
* The number and age of the homeowners.
* The current interest rate.
The maximum allowable loan limit, which is determined by the type of reverse mortgage selected and the average value of homes in your county. Snohomish County is considered a high value area, so reverse mortgage limits are higher here than in low cost areas such as rural Eastern Washington.
To make sure that homeowners don’t outlive their equity, the loan-to-value ratio is based on the borrowers expected life span. To qualify for a reverse mortgage the borrower must be at least 62 years old, and the older the borrower, the larger the allowable loan amount because their expected life span is shorter. For example, a 62-year-old might be able to borrow about $100,000 on a reverse mortgage, while a 76-year-old with the same amount of equity might able to borrow about $150,000.
Please keep in mind that these are just rough numbers for illustrative purposes only.
The reverse mortgage program can be a bit complicated, so it’s best to work with a loan officer who specializes in them. Seattle Mortgage is one of the biggest reverse mortgage lenders in this area, so give them a call and ask to speak to one of their reverse mortgage specialists.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206 or e-mail him at economy@herald.com.
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