What Is A Reverse Mortgage?
A Reverse Mortgage is a loan for homeowners who are at least 62 years of age, which allows them to convert part of the equity from their primary residence into cash. (Investment Properties and second homes do not qualify) In the United States, the most popular type of reverse mortgage is a Home Equity Conversion Mortgage (HECM) fully insured by the Federal Housing Administration (FHA).
A Reverse Mortgage allows retires with limited income to access the equity in their homes to cover living expenses, health care costs or satisfy other financial needs without having to make monthly mortgage payments. The HECM is called a reverse mortgage because instead of making monthly payments to a lender, the lender makes payments to the borrower. There are no restrictions on how the funds may be used and the borrower is not required to pay back the HECM reverse mortgage loan until the home is sold or vacated. If the older borrower dies, the younger spouse may continue to live in the home without having to repay the reverse mortgage balance as long as the property taxes and homeowners insurance are paid and the home is maintained to a reasonable level. Any home association dues (HOA Fees) must also be paid if applicable.
How Does A Reverse Mortgage Work?
To qualify for a reverse mortgage, you must be at least 62 years old and own a home with significant equity. Many seniors are not able to refinance their homes or qualify for a new mortgage because they are retired and do have the income to help prove they are able to pay back the loan. A reverse mortgage allows homeowners to remain homeowners, continue living in their home and have access to the equity in their home. Payment options include monthly payments, line of credit, single lump sum cash-out, or a combination of these. Borrowers will not have to repay the loan until BOTH of the spouses have died, the home is sold, or if the loan terms are not complied to such as continuing to pay the property taxes, home insurance, maintaining the home and paying any HOA dues if applicable. They borrowers must also continue living in the home as their primary residence.
Reverse Mortgages are not for everyone, but if you answer yes to more than one of these questions, it may be for you:
Are you over the age of 62?
Do you own a home with significant equity?
Do you want to remain living in your home and don’t plan to move out?
Do you need money now to pay for your most important expenses?
Do you want an emergency fund you can use when you need it?
Does your younger spouse want to continue living in the home if the older borrower dies?
Do you want a more meaningful and fulfilling retirement?
If we determine that you are a qualified candidate for a reverse mortgage, you will be required to speak with a 3rd party HUD approved counselor via telephone or in person. The HUD counselor will provide an overview of the reverse mortgage and answer any questions for you. Their job is to fully ensure you understand the terms of the reverse mortgage and your obligations.
You may now apply for the reverse mortgage loan and complete the application.
A Home Appraisal will be performed to determine the value of your home so that the loan amount can be calculated. Once the licensed appraisal is complete, the loan will go to “underwriting”.
The funds are tax-free and may be distributed as a lump-sum advance, monthly payments, line of credit or a combination of these options. You may use the funds for whatever you wish with no restrictions and you will not have to worry about paying any bills.
All HECM reverse mortgage loans are fully backed and insured by the Federal Housing Administration (FHA). This protects borrowers in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan. This means that younger spouse may continue to live in the home (with no loan payments) if the older spouse passes away as long as they comply with the loan terms. No loan repayments are required as long as you live in your home.
10 Reverse Mortgage Benefits
- NO MORE MORTGAGE PAYMENTS: You will no longer have to make any mortgage payments
- CASH: You may use the cash from the reverse mortgage loan as you wish. You will have the choice to receive payments monthly, as a single lump sum cash-out, as a line of credit or a combination of these payment options.
- NO PAYMENTS: No loan repayments are required as long as you live in your home
- TAX-FREE: The payments you receive from the reverse mortgage are tax-free
- HOME OWNER: You will always remain the owner of your home with a reverse mortgage.
- SPOUSAL PROTECTION: The younger spouse may continue to live in the home (with no loan payments) if the older spouse passes away as long as they comply with the loan terms.
- INSURANCE: Reverse mortgages are regulated and fully insured by the United States Federal Government’s Federal Housing Administration (FHA). This protects borrowers in the unlikely event of the loan amount exceeding the value of the home which may occur with a significant real estate crash or if the younger spouse outlives the loan.
- LOW FEES & EXPENSES: Fees for reverse mortgages are regulated by the HUD (US Department of Housing & Urban Development) with limitations and may be paid out of the loan proceeds. The only expenses you will likely incur are the appraisal fee and counseling fee which should total less than $500.
- NO PRE-PAYMENT PENALTY: You may choose to repay the reverse mortgage loan at any time without incurring any additional costs or penalties.
- Social Security: You may delay and increase your social security benefits. The longer you wait to access Social Security benefits, the more you may receive at a later date which will help boost your lifetime retirement income. (Delaying until age 70 to claim Social Security gives you the maximum amount)
To Qualify For A Reverse Mortgage You Must:
- Be 62 years of age or older (a non-borrowing spouse may be under 62 years old)
- Own your own home with significant equity
- Live in the home as your primary residence (No Secondary Homes or Vacations homes)
- Meet the simple financial requirements of the HECM program