We talk to many senior homeowners who desire a reverse mortgage and due to one circumstance or another, simply can’t take advantage of the program. For example, on one of the popular jumbo reverse mortgage programs today, a single 65 year old borrower would receive a principal limit of $631,800.00 and a couple with both borrowers aged 65 would receive a principal limit of $594,000.00.
The reason for the difference is because reverse mortgages operate much the same as insurance products which utilize actuarial tables, the older you are the more money you can receive. Statistics show that married borrowers live longer so the couple the same age as the single borrower actually receives less money.
But for borrowers with existing financing to retire, even the $631,800 may not be adequate for their needs. What do you do if you are a senior borrower or couple in need of funds and you still owe $1,000,000 on your $2,000,000 home?
There is another option for senior homeowners out there which is not considered a loan but rather a real estate transaction known as the Equity Key Product. The Equity Key is unique in a number of ways. Homeowners are actually agreeing to give up a percentage of future equity for a cash settlement today. For example, using our borrowers above, the single borrower can arrange for 10-15% of the value of their property for 50% of their future equity. Which means that for a cash payment of $300,000 today (if the borrower qualified for the maximum), the borrower or the borrower’s heirs would have to pay half of the equity gained on the property when it was sold.
If the borrower kept the property for 10 years and the value grew by 5% per year, the value would be approximately $3,000,000 and then the borrower or the borrower’s heirs would have to pay half of this amount to Equity Key, or $500,000.
This may sound like a lot of money to repay but think about this principal and interest alone at an average of 6.5% on a $300,000 loan would be over $573,000 without any fees that a typical mortgage charges that would have to be paid back instead of the $500,000 that the Equity Key will receive. And the Equity Key does not charge large origination and other fees like a typical mortgage.
Another good feature is that Equity Key also does not require that existing liens be paid off when you receive their funds. If more than one borrower is being considered then they can opt for between 20-30% (again depending on qualification) of the value of the home for 100% of all future appreciation.
The main feature is that the money can be used for any purpose and many borrowers utilize a portion of the funds to secure life insurance policies to not only lock in their current equity, but also to replace the equity that they pay to Equity Key upon their passing with a non-taxable life insurance payment to their surviving spouse or heirs. Unlike reverse mortgages, Equity Key can be utilized with commercial properties, land, multiple properties, non-owner occupied homes and just about any real estate.
As stated earlier, it’s not considered a loan but rather a real estate transaction. It also requires the borrower(s) to obtain a life insurance policy (which Equity Key pays for) so there is an additional requirement under this program that the borrowers must be insurable. There is more to the program that cannot all be explained here, but it’s got some really great features.
Just like reverse mortgages, this program is not for everyone. But for those who do not want to pay the up-front costs associated with reverse mortgages, for those who are concerned that there may be too much interest accrued on a reverse mortgage, for those who have a mortgage and are short with the reverse mortgage proceeds of retiring that debt, or for those who have a piece of real estate or occupancy type for which a typical reverse mortgage will not work (or need to use multiple properties to make the deal work), Equity Key may be the ideal reverse mortgage alternative.
Equity Key Program Features:
* Eligible Properties: Primary, Investment, Second Homes & Commercial Real Estate
* Maximum allowable 1st TD Lien 80% of property Value (LTV)
* Will not accept negative amortizing 1st lien
* Combine Multiple Properties (cross collateralize)
* Money received is NOT a debt and does not effect current equity positions
* No Closing Costs ($300 Refundable Application Fee)
* Minimum Property Value $500,000
* Minimum Age Requirements: 65-85Yrs