Ask The Expert: Does a reverse mortgage make sense if I plan on moving in three years?

posted by: Mark Schmidt Reverse Mortgage Specialist (773) 504-9633

Because a reverse mortgage is an expensive loan to get, it should be used as a long term solution.  As such, the best candidate for a reverse mortgage should plan on staying in their home for as long as they can foresee but at least 3-5 years so that the closing costs make more sense.
In your case, the question becomes "can I get by month to month for the next three years until I want to sell?"  If so, you can hold off on doing a reverse mortgage on your current home.  Once you find your new home, you may decide to do a reverse mortgage on that home to unlock more money and improve your quality of life.
On the other hand, if the mortgage payment and other bills (utilities, groceries, gas, property taxes, etc.) are too much to handle on your current income of $2,000 per month, you may not be able to make it three years in your current situation without risking foreclosure and/or ruining your credit score. 
You write that your home was appraised at $900,000 three years ago and you have a mortgage of $69,000 and a home equity loan of $50,000. Based on your information and today's interest rates, you would qualify for about $185,000 from a reverse mortgage.  Not only would this be enough to payoff your two existing mortgages (and eliminate the mortgage payments), but it would provide a $70,000 line of credit for emergencies and still leave you with at least $700,000 of equity to put toward you next home once you sell in three years.
This would reduce the financial pressure on you now and allow you to wait out the poor real estate market.  This way, you can sell when you are ready - not when your bills force you to.

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Posted by:Kavin Powel

5/12/2013 12:36:00 PM

Reverse Mortgage Company was extremely helpful and accommodating from the very first contact. Both their personal and professional cares were outstanding and we feel they performed with our best interest as their uppermost concern.

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