What is a reverse mortgage?

A reverse mortgage is a financial product designed for homeowners who are typically aged 62 or older. It allows them to convert a portion of their home equity into cash without having to sell their home or make monthly mortgage payments. Reverse mortgages can provide older individuals with additional income to support their retirement needs or cover unexpected expenses. Here’s how a reverse mortgage typically works:

Eligibility

To qualify for a reverse mortgage, you must generally meet certain requirements, including being at least 62 years old, owning your home outright or having a low mortgage balance that can be paid off with the proceeds of the reverse mortgage, and living in the home as your primary residence.

Types of Reverse Mortgages

There are several types of reverse mortgages, but the most common one is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). Other types include proprietary reverse mortgages and single-purpose reverse mortgages, which have different terms and eligibility criteria.

Loan Amount

The amount you can borrow through a reverse mortgage is based on factors such as your age, the appraised value of your home, and current interest rates. Typically, older borrowers, higher home values, and lower interest rates will result in a larger loan amount.

Disbursement Options

Reverse mortgage proceeds can be received in several ways, including as a lump sum, a line of credit, fixed monthly payments, or a combination of these methods. The choice of disbursement option can affect the total loan amount available to you.

No Monthly Payments

Unlike traditional mortgages, with a reverse mortgage, you do not need to make monthly principal and interest payments. The loan balance accumulates over time, with interest added to the principal.

Repayment

The loan becomes due when the last remaining borrower passes away, moves out of the home, or fails to meet other obligations of the loan, such as maintaining the property and paying property taxes and homeowners insurance. At this point, the loan must be repaid.

Sale of the Home

In most cases, the loan is repaid by selling the home. The proceeds from the sale are used to pay off the reverse mortgage balance, and any remaining equity belongs to the homeowner or their heirs. If the home’s value exceeds the loan balance, the excess equity goes to the homeowner or their heirs.

Heirs and Inheritance

If you have heirs, they may have the option to repay the reverse mortgage and keep the home. Alternatively, they can sell the home to pay off the loan and retain any remaining equity. If the home’s value is less than the loan balance, the FHA insurance will cover the difference, and the heirs will not be responsible for the shortfall.

Schedule A Consultation With A Loan Advisor

The first step to obtaining your reverse mortgage is to understand the program. Contact us today to schedule a consultation.

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