Finance of America Reverse (FAR) has introduced EquityAvail, a hybrid product that combines aspects of traditional and reverse mortgages to deliver greater optionality for homeowners at or near retirement.
EquityAvail creates improved cash flow by lowering monthly mortgage payments for ten years before eliminating them altogether, the company says in a release.
The new product, which will launch in April, helps solve for the financial challenges many Americans over the age of 60 face in reducing expenses as they prepare to exit the workforce, unlocking the liquidity needed to age in place and enjoy their retirement years. It allows qualifying homeowners to refinance their traditional mortgages and reduce their required monthly payments for 10 years. After that, the borrower is no longer required to make the monthly payments. While taxes and insurance must always be paid, this reduced monthly obligation and required payment period gives homeowners more financial stability and better prepares them to handle unexpected expenses.
In creating EquityAvail, FAR has invented a way to address one of the most critical problems facing elder generations in America. For many, the pathway to achieving financial security in retirement has become increasingly challenging. They are living longer, often have cash flow 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%.
With historically low interest rates, some homeowners will end up exploring a mortgage refinance in an effort to reduce monthly payments and find liquidity in their home equity.
However, a traditional refi can burden borrowers over 60 with 30 more years of mortgage payments. What’s more, many retirees whose incomes are decreasing will not qualify for a traditional refinance due to high debt-to-income ratios. Even if they do qualify, unexpected income loss could create economic upheaval, forcing them to sell their homes.
“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,” says Kristen Sieffert, president of FAR.
“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.”
EquityAvail is a single, fixed-rate mortgage. The loan is fully disbursed at closing with a maximum loan amount of up to $4 million. Like traditional forward mortgages, a tax and insurance escrow account is used for ease of budgeting and administration. When the homeowner dies, 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. Additionally, EquityAvail has no origination fees or monthly servicing fees, and there is no minimum home value requirement to qualify.
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