Can you downsize your home and also use a reverse mortgage? Yes, and a growing number of people are choosing to downsize and also use a reverse mortgage at the same time.
How Did One Couple Downsize And Use A Reverse Mortgage?
Here’s a possible example (fictionalized): one Southern California couple sold their 4,000 square foot home for $1.5 million. They relocated to a 2,000 square foot home in a community closer to where their children live in Utah.
Their new, smaller home in Utah cost $450,000. The couple was able to invest another portion of the proceeds from the sale of their home.
The couple was also able to use a reverse mortgage to provide income for their new downsized lifestyle. Combining downsizing with a move and a reverse mortgage allowed them to have the retirement lifestyle of their dreams.
Combining Downsizing, Moving, and Reverse Mortgages
People traditionally view mortgages and moves as separate from income and lifestyle changes. But your overall financial health is affected by all three. Also, if you’ve lived in your home a long time, you’ve probably built up a lot of equity.
Downsizing from a larger, older home is straightforward. You can sell your older home and receive significant equity, especially if your mortgage has been completely paid off.
Where the transaction becomes more complex is combining a reverse mortgage with a move to a new, smaller home. If you use part of the proceeds to pay for a downsized home, you also have equity in that home.
Couples like our fictional example can provide themselves with income through a reverse mortgage. There’s one thing to consider with a reverse mortgage, however: there are principal limits.
According to the Consumer Financial Protection Bureau (CFPB), how much you can borrow using a reverse mortgage depends on your age, the loan’s interest rate, and your home’s value.
In the case of a combined original home sale, downsizing, and new home purchase, the reverse mortgage amount will be influenced by the value and equity of your new home as well as your age and the age of your spouse or partner.
Combining the sale of an older, larger home with a move to a new, smaller home, along with using a reverse mortgage to provide income could be a good choice for many older adults. The process is complex, however. Fortunately, there are specialists with experience in the field who can guide you through the process, like California Platinum Loans. Contact them today to discuss your options.
Sources:
Brown, Jeff. “Pros and Cons of Downsizing and Reverse Mortgages,” U.S. News & World Report, url: https://money.usnews.com/investing/real-estate-investments/articles/2017-09-07/pros-and-cons-of-downsizing-and-reverse-mortgages
Consumer Financial Protection Bureau. “How much money can I get with a reverse mortgage loan, and what are my payment options?”
