Monday, September 21, 2020

What is a Reverse Mortgage and How is It Managed?

A reverse mortgage allows homeowners over the age of 62 to leverage their home’s equity. A reverse mortgage allows an individual who owns their home outright or who has a sufficient amount of equity in their home to withdraw some of that equity without needing to repay the loan until they move out of the home.

Reasons to Consider a Reverse Mortgage

Homeowners who opt for a reverse mortgage are not required to make monthly payments nor sell their homes at the moment. They can continue to live in their home and then repay the loan when they move out of the home or when the borrower dies. Many homeowners use this tool to supplement retirement income. They may use this tool to cover the cost of repairing the home or cover other expenses. 

A reverse mortgage is a tool that might allow seniors to get the money they need without needing to use high-interest lines of credit or other expensive loans. Home Equity Conversion Mortgage loans are popular. These are backed by the federal government.

Requirements for a Reverse Mortgage

To qualify for a reverse mortgage, the homeowner must be over 62 years of age. There are exceptions where a primary homeowner who is over 62 and a spouse who is under 62 could qualify if they meet certain eligibility criteria. To qualify, you must own your home outright or only have one lien you want to borrow against. 

The proceeds from the reverse mortgage must first be used to pay off any existing mortgage on the home. The home must be your primary residence, and you must live there. Homeowners will need to stay up-to-date with their property taxes, legal obligations, HOA dues, and homeowner’s insurance. 

They must keep the property in good condition. The property has to be a single-family home, townhouse, condominium, or a multi-unit property with a maximum of four units. Manufactured homes built after 1976 can also qualify.

How Much Money Do You Get from a Reverse Mortgage?

The answer depends on factors such as the current market value of the home, your age, and the type of reverse mortgage you apply for, including a home equity conversion mortgage, proprietary reverse mortgage, or single-purpose reverse mortgage. The older you are, the higher your principal limit will probably be.

When used properly, a reverse mortgage can be a financially liberating tool. Seniors will need to use caution. They must budget the money they receive appropriately and get the most use out of it.

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