EquityAvail TM lowers monthly mortgage payments for ten years, at which time they are eliminated altogether; creates glidepath to retirement.
Innovative hybrid product, combines aspects of traditional and reverse mortgages to deliver a ‘new world of options’ for homeowners at or near retirement
For many Americans over the age of 60, the pathway to achieving financial security in retirement has become increasingly challenging. They are living longer and often have cashflow shortfalls and carry significant debt – including a traditional home mortgage. In fact, over the last three decades, the number of people over the age of 60 burdened by traditional mortgage debt has doubled to more than 40%i. With historically low interest rates, some homeowners will end up exploring a mortgage refinance in an effort to reduce monthly payments and potentially take “cash out” from their home equity. However, a traditional refi can spell trouble for borrowers over 60 who are charting their course to retirement.
- When one or more borrowers have reduced income due to retirement, they may not qualify under traditional loan guidelines due to high debt-to-income ratios.
- Those who do qualify can end up tethered to 30 more years of mortgage payments. If ability to make these mortgage payments is dependent upon continued full-time employment, this is not sustainable for borrowers hoping to retire.
- Even if the borrowers can qualify for a refinance today, and plan to work for the foreseeable future, an unexpected income loss—through disability, death of a partner or unrelated economic upheaval, like that encountered in 2020 with COVID-19—could leave the borrowers with no feasible option but to sell their home.
The upcoming launch of EquityAvail by leading retirement solutions innovator Finance of America Reverse LLC (“FAR”) is opening up a significant new set of options for homeowners. This product is the first-of-its-kind and will provide a needed option for a large segment of the population looking to improve cashflow and remain in their home for as long as they wish.
EquityAvail allows qualifying homeowners to refinance their traditional mortgage and reduce their required monthly payments. With an EquityAvail Retirement Mortgage, partial interest payments are only required for 10 years, after which the borrower is no longer required to make the mortgage payments at all. While taxes and insurance must always be paid, this reduced monthly obligation and reduced required payment period gives homeowners more financial stability and better prepares them to handle unexpected expenses or medical bills that inevitably arise over time.
“Every year, more than a million homeowners over the age of 60 enter into a 30-year mortgage obligation, yet current qualification standards only require lenders to ensure borrowers can afford mortgage payments for about three years. After that, they’re on their own. Then, there’s another million or so individuals of the same age who are denied a 30-year mortgage altogether due to insufficient cash flow. The result is more than two million homeowners who, if given the opportunity, would have likely explored a more suitable loan alternative at this stage in life. Our commitment to help these people is what led FAR to create a solution from the ground up that can unlock a whole new world of options,” said Kristen Sieffert, President of FAR.
Patti Cook, CEO of Finance of America, added: “EquityAvail is the latest example of our proven ability to innovate and create products that meet the evolving needs of our customers. It is the proprietary insights gleaned from our powerful data platform that enable us to identify gaps in the market, providing us with a sustainable competitive advantage. In this case, we noticed a need that wasn’t being met by either a traditional or reverse mortgage product and leveraged our decades of expertise within both sectors to create a solution that will make a real difference. Solving problems is what we do best, and we look forward to continuing to introduce new innovations across our platform.”
How EquityAvail Works
EquityAvail is a revolutionary hybrid product that combines elements of a forward mortgage with a reverse mortgage. It is a single fixed-rate loan that creates lower monthly mortgage payments during the first 10 years. After that, the monthly mortgage payments are no longer required, and the homeowner simply needs to maintain the home and stay current on property taxes and insurance. The loan is fully disbursed at closing with a maximum loan amount of up to $4 million dollars. Like traditional forward mortgages, a tax and insurance escrow account is used for ease of budgeting and administration. When the homeowner passes away, sells the house, or it ceases to serve as their primary residence, the remaining loan balance is paid back. Importantly, the homeowner or heirs will never owe more than the value of the home as it is a non-recourse loan. See below for additional information about this loan product.
Similar to FAR’s proprietary HomeSafe® suite of products, which was created to provide an option for those who could not benefit from a Home Equity Conversion Mortgage (HECM), EquityAvail meets a need in the market for those homeowners whose existing mortgage balance exceeds available proceeds from a regular reverse mortgage loan.
The increased cash flow and additional liquidity that EquityAvail yields can support a number of financial goals as part of a larger retirement strategy including supplemental savings, preservation of invested assets, catch-up contributions to retirement accounts, funding insurance or long-term care plans, and paying other debts and expenses, among others.
When launched, EquityAvail will only be available to qualified homeowners whose primary residence is in California, Florida, New Jersey, or Virginia. Additional states will be added soon. In order to qualify, borrowers must meet the following criteria:
- Be age 60 or older
- Have an existing traditional mortgage to refinance with at least 10 years remaining
- Have a minimum loan amount of $100,000
- Complete required counseling with a HUD-certified counselor
- Complete the required appraisal(s)
- Pass the required financial assessment (including minimum credit score of 680 and ability to make the required payments, including taxes and insurance)
- Available reverse mortgage loans provide insufficient funds to pay off existing mortgage
Additionally, EquityAvail has no origination fees or monthly servicing fees, and there is no minimum home value requirement to qualify.
The Mortgage Situation For Americans Age 62+ii
- Their typical mortgage payment ranges between 30 and 50% of their monthly income
- In 2018, over 1 million mortgage applicants over age 62 were rejected as their DTI ratios were too high
- In 2018, there were about 1.3 million mortgages for borrowers over age 62, but only 33,000 were reverse mortgages
- Of the 1.3 million, about half were either refinances or purchase with higher LTVs than the traditional reverse mortgage offers
“We take our customer-first approach to heart. We identified a gap that wasn’t being met by either a traditional or reverse mortgage product and delivered a solution that we believe will make a real difference for homeowners in retirement,” said Britany Luth, Senior Vice President of Best Practices at FAR.
Additional Information about this Loan Product
Borrower is required to make non-amortizing payments for first ten years of loan term. These payments will not cover the full amount of interest accruing and non-paid interest will be added to principal balance of the loan. Borrower is required to pay taxes and insurance. This loan will reduce the borrower’s equity in the home which may make it more difficult to refinance the loan or to sell the home. By refinancing an existing loan, the borrower’s total finance charges may be higher over the life of the loan. Primary occupancy only. Not available in all states. Additional terms and conditions apply. Ask a mortgage advisor for more details.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.