In a custom Retirement Size® plan it is often necessary to refinance or choose a new mortgage product. Typically, the Firm utilizes one of three strategies when a mortgage product change is needed.
Traditional Mortgage –With a Traditional Mortgage, a borrower will acquire or refinance a home using a mortgage that has regular monthly payments. Often, these mortgages are in the form of a 30-year or 15-year term and either have a fixed interest rate or a variable rate that will be fixed for an initial period. Generally, in a Retirement Size® plan a fixed rate Mortgage is the preferable option. Advantages of the Traditional Mortgage include, fees are generally lower than other mortgage options, loan to value percentages are generally higher, additional funds can be rolled in for repairs or improvements. The disadvantage to a Traditional Mortgage is that payments must be made for the life of the loan, decreasing the availability of excess cash in your budget.
Reverse Mortgage (Existing Home) –This loan type is an FHA product that has been utilized by individuals that are 62 years of age or older to access the equity in their home for virtually any reason. This particular loan type is only recommended in situations where excess cash in an individual’s budget is a problem or in cases where Medicaid qualification is desired. Due to the Medicaid Estate Recovery Program (MERP), individuals that receive Medicaid benefits can subject their estate to governmental seizures for reimbursement of funds paid through Medicaid to a homeowner after the homeowner is 55 years of age or older. For that reason, a Retirement Size® plan contemplating the use of Medicaid benefits at some point in the future will typically contain a Reverse Mortgage component. The advantage to a Reverse Mortgage is that no repayment of the debt is necessary so long as you are alive and living at the property. Once either death or departure occurs with respect to the property, the borrower’s estate will have the option to pay the loan off in full and keep the property or surrender the property to the lender. The disadvantage is that the costs and fees are typically higher than a Traditional Mortgage, which can result in untapped equity.
Reverse Mortgage (Purchasing New Home) –This loan type is the same as the regular Reverse Mortgage; however, was not available to Texas citizens until a constitutional amendment was passed in November 2013. Typically, the purchase of a property with this vehicle requires approximately a 40% down payment in cash with the remainder funded by the Reverse Mortgage. This too is typically only recommended when the Retirement Size® plan requires an increase in liquid cash to service current and future needs of the individual.