Home Equity Conversion Mortgage frees up cash
Mary Chao, Staff writer
For five decades, Sylvia Farrer and Phil Bornarth cherished their historic home in Pultneyville, decorating it with Asian antiques and installing an oriental garden.
But as they aged, they realized they could no longer do the chores necessary to take care of a large estate. They began talking about downsizing five years ago, but only recently acted on what they knew would be best in their golden years.
In December, the couple sold their five-bedroom home in Pultneyville, Wayne County, for $195,000 and bought a town house in Penfield for $242,000 using a Home Equity Conversion Mortgage. The loan allowed the buyers to finance part of the purchase price without monthly mortgage payments, explained Sharlene Nally of Hunt Mortgage. The program allows seniors to sell their current residence and only use a portion of the proceeds to buy their new home, letting them keep more cash, Nally added.
Farrer and Bornarth borrowed $150,000 for their new home under the program, putting $100,000 down. That $150,000 does not have to be paid back as long as one of them keep it as their primary residence. The couple does not have a mortgage payment, paying only taxes and maintenance. The loan is to be paid upon their deaths. If there is more than $150,000 in equity, the estate gets to keep the difference minus Realtor and other fees. If their home depreciates, the program absorbs the difference in the loan amount versus what the house sells for.
The loan is for buyers 62 and older and is a variation of a reverse mortgage, Nally said. It is a Federal Housing Administration program that enables seniors to withdraw some of the equity of the home. Seniors choose how to withdraw funds, whether in a fixed monthly amount or a line of credit or a combination of both. Seniors may use the loan to purchase a primary residence.
Farrer, 79, and Bornarth, 86, put $100,000 toward their 1992-built town house in an area known as Allens Creek Valley and used the rest for travel and household maintenance. They were interviewed twice by HUD staffers to make sure they understood the terms of the deal, Farrer said. “They really want to make sure you understand what you’re doing,” she said.
The program works for the couple because they own their home without a mortgage. A family with a large mortgage remaining would not qualify, explained Rich Testa of Hunt Real Estate, who helped the couple sell their home and find their new residence.
This loan is meant for the senior home buyer who wants to keep more of the cash from the sale of their home, Nally said.
Bornarth realizes that taking out this loan will mean less to leave to their two adult children, but noted both are doing very well professionally.
As the baby boomer generation begins to retire, they reflect on their housing and financing needs, Testa said. “They are looking to maintain a comfortable lifestyle in a home that fits their needs and wants,” he said.
Part of that adjustment is moving to a single-level home. Farrer and Bornarth are enjoying the location of their new residence as it sits perched up on a hill and is closer to Rochester, where they enjoy many arts activities.
Now the new challenge is unpacking their possessions from their larger home and deciding how to downsize their collectibles such as books and art now that they have downsized their living space.
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