All About Reverse Mortgages
What is a reverse mortgage?
A simple answer to the question "What Is A Reverse Mortgage?" can be a challenge for many people, even the experts.
Reverse mortgage loans are a way for older homeowners to convert their home's value into tax-free cash, without having to sell or move. Insured by the U.S. government, the Department of Housing and Urban Development (HUD) allows Homeowners who are 62 or older to borrow against the equity of their homes.
"What Is A Reverse Mortgage?" can also be answered by saying that it is very much like a standard home equity loan or line of credit with deferred payments. In this case, payments are deferred until the last borrower has permanently moved out of the home.
Reverse mortgage loans are a way for older homeowners to convert their home's value into tax-free cash, without having to sell or move. Insured by the U.S. government, the Department of Housing and Urban Development (HUD) allows Homeowners who are 62 or older to borrow against the equity of their homes.
"What Is A Reverse Mortgage?" can also be answered by saying that it is very much like a standard home equity loan or line of credit with deferred payments. In this case, payments are deferred until the last borrower has permanently moved out of the home.
How do reverse mortgages work?
- Qualifying homeowners choose to receive tax-free payments from their reverse mortgage lender either on a monthly basis, in a lump sum, or as a line of credit.
- No income or credit checks are required to apply for a reverse mortgage.
- No repayments are required while a borrower lives in the home.
- Social Security and Medicare benefits are not affected.
- Reverse mortgage lenders recover the loan amount, plus interest, when the homeowner no longer lives there (usually because the owners choose to move, or they pass away).
- When the loan is paid in full, all remaining equity associated with the property will be distributed to the heirs.
Keep in mind:
Reverse mortgage borrowers always continue to own their homes. Because there are no monthly loan payments due, the amount owed grows over time (unless the borrower chooses to make payments). That means that equity in the home decreases, which is the exact reverse of a traditional mortgage.
Borrowers must continue to pay their usual homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with repairs. If a borrower fails to adhere to any of these obligations, it may become cause for the loan to become due. In that case, the loan would become payable in full.
Do I qualify for a reverse mortgage?
You must be age 62 or older. And you must occupy the home as your primary residence – for the majority of the year. Borrowers must own the home outright or have a balance on the existing mortgage that can be paid off from the proceeds of the reverse mortgage.
Each borrower listed on the title must apply for the reverse mortgage loan, attend a free HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the telephone.
Does my home qualify for a reverse mortgage?
First of all, your residence must meet HUD standards. The reverse mortgage must also be the only mortgage held against the residence. That means that if there is a current mortgage on the property, it must be able to be paid off with the proceeds of the reverse mortgage.
Examples of qualifying homes:
- Single Family One-Unit Residences
- 2-4 Unit Owner-Occupied Residences
Ask your lender if these residences qualify:
- Manufactured Homes
- Condominiums
- Planned Unit Developments
How is a reverse mortgage loan amount determined?
The amount of the loan is based on:
- The age of the youngest borrower
- The appraised amount of the property
- The current interest rate
What are my reverse mortgage options?
HECM -- The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, governs how much HECM lenders may loan to qualified borrowers, and limits loan costs.
Because this is a government insured program, loan counseling is required by an approved HUD counselor.
Because this is a government insured program, loan counseling is required by an approved HUD counselor.
HECM offers 4 options for borrowers to receive their loan funds:
- Monthly income for a fixed term, or life
- Line of credit
- Lump sum
- Any combination of the above 3
If you have further questions regarding your specific situation, please feel free to call me, Amy Catling, at 1-207-251-0633 or toll-free at 1-800-476-2858.
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