What's the best type of mortgage loan to use when buying a home in the…
If you’re a Bay Area homeowner above the age of 60, and you currently own a home, you’ve probably heard a lot about reverse mortgage loans. TV, magazine ads, direct mail. Everywhere you turn, banks and other financial institutions are offering reverse mortgages to Bay Area homeowners.
But how does this financing strategy work? What are the potential benefits? And how is a reverse mortgage different from a regular home loan, like the kind used to buy a house?
Those are just a few of the questions we’ll address in this reverse mortgage guide for Bay Area homeowners.
The Bay Area Reverse Mortgage, Explained
A reverse mortgage is a type of loan made against the value of your home. In this way, it is similar to a home equity loan. But the similarities end there. In a typical reverse mortgage situation, the borrower does not have to pay the loan back for as long as they live in the home.
In other words: A Bay Area reverse mortgage allows older homeowners to convert the value of their homes into cash, and without having to repay the loan right away. These products are usually limited to borrowers 62 and up.
As it states on the Sacramento public law library website:
“According to California law, in order to qualify for a reverse mortgage homeowners must be age 62 or over, occupy the property as a principal residence, and own the home outright or have significant equity in the home.”
Here’s how this financing option differs from a regular home loan:
- When using a regular mortgage product, the homeowner / borrower makes monthly payments to the lender in order to buy the home over time.
- When using a reverse mortgage, Bay Area homeowners can obtain a loan in which the lender pays them. This type of loan takes a portion of the home equity and converts it into payments that are sent to the homeowner.
Here in the San Francisco Bay Area, reverse mortgages can be well suited for senior citizens who (A) own their homes and (B) want to turn some of their equity into cash.
How Much Can I Borrow?
Another common question among homeowners is: How much can I borrow when using a reverse mortgage? The answer can vary from one borrower to the next, for a number of reasons.
When it comes to Bay Area reverse mortgages, the amount you can borrow will depend on the following factors:
- your current age
- the specific type of loan you’re using (there are different kinds)
- the current appraised value of your home
- current interest rates
- other financial obligations you might have
There are other factors that could affect your borrowing capacity with a reverse mortgage. But the ones listed above tend to “weigh” the most. We can review your situation and tell you, specifically, how much you might be able to borrow.
Generally speaking, Bay Area homeowners who are older, who own more valuable homes, and who borrow when interest rates are lower tend to qualify for a higher amount.
When Do I Pay the Loan Back?
The specific details of a reverse mortgage can vary from one borrower to the next. But in most cases, the repayment requirements are the same.
Generally speaking, you don’t have to pay the money back for as long as you live in the home. This is one of the benefits offered by Bay Area reverse mortgages. When the homeowner dies, sells the home or moves out, the borrower, spouse or estate would then repay the loan.
Here’s another way to think of it: The loan will have to be paid back when the home is no longer your primary residence, for whatever reason. When one of the scenarios mentioned above has occurred, and the loan repayment is due, you or your estate will repay the amount borrowed plus any lending fees (if applicable).
A Popular Strategy Among Homeowners
Across the U.S., and here in the San Francisco Bay Area, reverse mortgage loans have increased in popularity over the years. Marketing has something to do with this. These loans are more heavily promoted today than when they first came out, in the “pre-Internet” era.
Home price trends have also contributed to the popularity of reverse mortgages in the Bay Area. Home values in our region have risen steadily for many years now. This trend increases equity among homeowners, allowing many of them to benefit from a reverse mortgage.
There’s also a larger pool of potential borrowers today than in the past. Today, there are more than 46 million adults who are 65 or older living in the U.S. That number is expected to approach 90 million by the year 2050.
So it’s a combination of factors fueling the continued popularity of reverse mortgage loans in the Bay Area. Rising home values, a larger number of eligible borrowers, and a higher degree of promotion and advertising have increased their usage.
Is it right for you? Bridgepoint Funding offers reverse mortgage loan options for homeowners in the Bay Area and elsewhere across the Golden State. We can answer any questions you have to help you determine if this financing strategy is right for you. Just contact our staff to get started!