A reverse mortgage is a loan designed for homeowners who are 62 years or older, enabling them to convert their home equity into cash. This allows them to remain in their home without the need to sell it or make any monthly payments towards the loan.
Repayment of the loan is not required until the homeowner either relocates, passes away, or decides to sell the property. At this time, the loan is settled using the proceeds from the property's sale. Heirs may also choose to refinance the property to pay off the loan.
The ability to stay in ones home without a monthly mortgage payment offers the flexibility to use the acquired funds for various purposes. Though you are not limited in how you utilize the funds, some options include: covering significant expenses, clearing debts, supplementing retirement income, or simply enhancing the enjoyment of retirement.
Additionally, reverse mortgages contribute to the financial stability of seniors, aiding them in "age in place" for as long as possible during their retirement years.
Reverse mortgages primarily come in two forms: Home Equity Conversion Mortgage (HECM) and Proprietary Reverse Mortgages.
A HECM is a government-insured loan, backed by the Federal Housing Administration (FHA), and can only be obtained through FHA-approved lenders.
One advantage of the HECM loan is there are no monthly mortgage payments (unless you want to). Proceeds can come in the form of a partial lump sum, monthly payments, a line of credit or any combination of these. There are no penalties for early repayment.
On the other hand, Proprietary Reverse Mortgages are provided by private financial entities and are not government-insured. These loans often allow for higher borrowing limits compared to HECMs (like the Jumbo Reverse). However, they might not be as widely available, subject to specific credit score requirements and other criteria.
Both types of reverse mortgages enable homeowners to access their home's equity, either as a lump sum or through a line of credit. This flexibility allows borrowers to use the funds for various purposes, such as covering healthcare costs, home renovations, or securing long-term care insurance.
To be eligible for a reverse mortgage, applicants generally need to be at least 62 years of age and either fully own their home or have significant equity in it.
Additional criteria must also be met to secure a reverse mortgage loan:
Robb Hamilton
NMLS# 358150
Broker License #2407110
This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA). It is not intended to be a substitute for legal, tax or financial advice. Consult with a qualified attorney, accountant or financial advisor for additional legal or tax advice.
*There are some circumstances that will cause the loan to mature and the balance to become due and payable. The borrower(s) must continue to pay for property taxes and insurance and maintain the property to meet HUD standards or risk default. Credit is subject to age, minimum income guidelines, credit history, and property qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.
Homeowners must be 62 years of age or older and live in the home as their primary residence. Homes must meet FHA/HUD minimum property standards. Borrowers must maintain hazard and flood insurance premiums, property taxes, utilities and make any property repairs. Although there are no mandatory monthly principal and interest mortgage payments, interest accrues on the portion of the loan amount disbursed if no payments are made. Program rates, fees, terms and conditions are not available in all states and subject to change. At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds. Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees. The loan balance grows over time and interest is charged on the outstanding balance. The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home. Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment.
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