What is a Reverse Mortgage? Perhaps you’ve seen the commercials on tv or maybe a friend, family member, or neighbor was telling you about it. A Reverse Mortgage is an FHA, Government-insured loan that allows homeowners, age 62 and above, access to the equity that they’ve already invested into their property. Commonly known as the HECM (Home Equity Conversion Mortgage) Reverse Mortgage, this loan type is specific to senior homeowners and is primarily used to pay off any remaining mortgage balance while remaining in the property for as long as they’d like. That’s right, no more monthly mortgage payments! Homeowners who pay off their remaining mortgage balance and still have adequate equity in their property could also be entitled to receiving their proceeds as an additional source of income. The payout options include a lump sum option, giving the homeowner all of their available equity up front; monthly payments, the homeowner would receive a certain amount per month for the life of the loan; or opening up a line of equity which would allow the homeowner to access as much or as little money that is needed at any time, or any combination of these options.
Not everyone qualifies for a Reverse Mortgage. One qualifying factor is that anyone on title for the property must be 62 years of age or older. Another factor that makes a homeowner eligible is that the property they’re taking the Reverse Mortgage out on must be considered their primary residence. The last qualification for the HECM Reverse Mortgage is that homeowners must have some sort of equity already invested in their home. The loan limitations are dependent on the borrower’s age, current interest rate, appraised value of the property, and government imposed lending limits. Reverse Mortgages do not need to be repaid until the last surviving homeowner permanently moves out of the home or passes away.
If you were thinking about relocating and making a move you could also purchase a home with a HECM Reverse Mortgage. Borrowers, age 62 and older, would put down a percentage of the purchasing price in cash based on the loan limitations mentioned and they would never have to make a mortgage payment for as long as they lived in the home.
I know what you’re thinking, “What’s the catch?”. While a Reverse Mortgage can help some homeowners achieve the financial freedom they desire during their golden years, some homeowners might not find it suitable for their family long term. It’s no secret some people have something to say about reverse mortgages!
The lenders fees for reverse mortgages have been noted as being rather costly. Along with higher lenders fees, the loan balance increases over time. The interest of the loan is added to the outstanding balance which, in time, reduces the remaining equity in the home. This, in turn, reduces what you can potentially leave to your heirs or use for future expenses you may incur. In addition, the homeowner is still responsible to pay their own property taxes and homeowners insurance. If both the property taxes and homeowners insurance go unpaid, the homeowner will default on the loan and must pay back the full loan amount.
When do I have to pay back this loan? As long as the homeowner is living in the property they do not have to repay the loan amount. However if the homeowner sells the property, needs to move in with family members, or is moved into a nursing home or living in a long term health care facility for more than 12 months, the loan must be repaid.
Studies have shown that about 80% of seniors would prefer to remain in their current home to live out the rest of their days. Some supporting reasons are the safety they feel, the memories and time shared in the home, the friendships and neighborhood they built and love, along with the independence and freedom of living on their own.
For some homeowners, the Reverse Mortgage Program will help them save their homes and put more money in their pocket. For others, a Reverse Mortgage may prove to be more of a hassle in the long run rather than a ‘save all’. Whatever it is that you’re considering, speak to a knowledgeable professional with Reverse Mortgage Space before making any decisions. Let them answer any questions you may have and give you the extra certainty you need to make sure you’re making the most beneficial choice for your future.