By: Bob Irving – August, 2011
Sandra and Martin Walsh represent a new breed of homeowner facing a dilemma that is increasingly common. After 45 years of marriage they agreed amicably to divorce.
Their $400,000 family home, however, presented a major problem that they struggled to resolve. Martin wanted to retain the home and continue to live there… but he simply did not have the financial resources to buy out his ex-partner. Of course, Sandra’s name was still on the deed and she remained responsible for the mortgage balance. She wanted relief from that financial burden plus fair payment for her share of equity in the home. The only sensible solution seemed to be to sell the home, pay off the mortgage and split the leftover cash.
Their personal financial planner counseled against that option, however. (He also counseled against liquidation of an investment portfolio earmarked for retirement that had not yet fully recovered from losses experienced several years ago… but that’s another story.)
Fortunately for Mr. & Mrs. Walsh, their planner was knowledgeable and well informed about a popular, unique loan program available to senior homeowners who are 62 years old and own their own home. This situation proved to be an excellent opportunity to make use of a federally insured HECM loan program from HUD often referred to as a reverse mortgage…or a Home Equity Conversion Mortgage.
Here’s how it worked out. The financial planner called in a reverse mortgage specialist to consult and help the Walsh’s understand the pros/cons of the variety of HECM programs. After a thorough analysis of the facts of their situation it was determined that they were qualified and the HECM loan program would provide enough funds to pay off the remaining mortgage in full; canceling Sandra’s future liability. They also qualified for an additional amount equal to about 50% of the remaining equity in the home… and that was turned over to Sandra at loan closing in exchange for removing her name from the deed.
It was a win/win situation. George remained in the home that he loved and Sandra received her fair share of the equity in the home and did not need to worry about any future liability since the mortgage was paid in full.
Not all situations work out this well, of course. But it’s important to understand that the HECM program is no longer strictly for little old ladies trying to exist on $600 per month social security. Savvy financial planners and elder law attorneys have recognized that the program is useful for their clients in numerous ways. It has become an important financial tool for many senior homeowners trying to solve a financial problem.
Bob Irving is a Sr. Reverse Mortgage Consultant and Certified Senior Advisor with First Integrity Mortgage, LLC in Lawrence MA. He is fully licensed in MA, NH & ME (NMLS #19086) and works with senior clients, their families and trusted advisors by referral. If you have questions, he may be reached direct at 978-686-0394 or by email at firstname.lastname@example.org . Visit his website at www.rhirving.com for access to more detailed information about reverse mortgages.