A mortgage company headed by a San Diegan is unveiling a hybrid mortgage that combines elements of a conventional mortgage and elements of a reverse mortgage.
Headquartered in Tulsa with San Diego offices in UTC, Finance of America Reverse in April will start offering what it calls EquityAvail, said company President Kristen Sieffert.
“Our company is really focused on finding creative ways to help people approaching retirement or in retirement to improve their cash flow situation and do the things they want to do before it’s too late,” Sieffert said. “Our goal is to solve for cash flow. To really help people find ways to increase their cash flow when they don’t have many options to do so.”
The fixed-rate mortgages will be available to people aged 60 or older.
The way they work as described by Sieffert is that Finance of America grants a loan on a home.
For the first 10 years of the loan, the homeowner makes monthly payments just as they would with a conventional mortgage, but the payments are far less than they would be, Sieffert said, often less than half.
After the first 10 years, there are no more mortgage payments required, although the homeowner has the option of continuing to make payments to keep down the amount they owe on the house.
“At the end of 10 years, the mortgage payment automatically goes away and you have a no-pay mortgage,” Sieffert said. “We’re really trying to create a mortgage that ages with people.”
Homeowners are always required to pay property taxes and insurance costs.
When the 10 years are up, the loan balance continues to grow through the negative amortization feature of the EquityAvail loan.
“Your balance is slightly growing,” Sieffert said. “It’s basically a forward mortgage and a reverse mortgage and turning it into one.”
The hybrid mortgage also comes at a higher interest rate than a conventional mortgage.
Typically, Sieffert said it would be 1.5% to 2.5% above benchmark rates.
The balance of the loan is due when the homeowner dies, sells the house, or no longer uses it as a primary residence.
Sieffert said that homeowners or heirs will never owe more than the value of the home.
“EquityAvail is a non-recourse loan, which means that the borrower or their heirs will never be personally liable for any amount. Given home appreciation rates, market conditions, and length of time – it is possible the loan balance exceeds the value of the home – but given the non-recourse feature of EquityAvail, the borrowers or their heirs would not be liable for any such shortfall,” Sieffert said.