Wednesday, November 24, 2021

Everything You Need to Know about a Reverse Mortgage but Were Too Afraid to Ask

There's nothing quite like the feeling of owning your own home. It’s an investment you don’t take lightly. From the purchase of your first home to moving on to what will be your family home, you’re not just placing a roof over your head and the heads of your family, you are creating memories.

But not everyone can afford to pay the monthly mortgage once they turn 62 and the retirement years loom large. After all, you will no longer be earning a paycheck but instead living off your savings and/or a 401(K) retirement plan. 

But what can you do if you find yourself in the position of having to choose between paying unexpected expenses like medical care or home repair/renovations, and paying the monthly mortgage payment?

One financially smart place to seek help is by applying for a reverse mortgage loan. While there are different reverse mortgage pros and cons, generally speaking, a reverse mortgage can save you a whole lot of financial and emotional heartache.

According to a new article, reverse mortgages are a way for homeowners 62 years of age and older to leverage the equity in their home in the form of monthly payments or one lump sum payment. 

With a reverse mortgage, a homeowner who has considerable equity built up in their home (or who owns their family home outright), can withdraw much of this equity in the form of cash and never have to pay another mortgage payment again. 

What’s more, they never have to pay the loan back until they either move or the borrower passes away.

The Home Equity Conversion Mortgage (HECM) is, at present, considered the most popular form of reverse mortgage since it is back by the federal government.




How a Reverse Mortgage Works


Regardless of what the reverse mortgage offers, some qualified homeowners might not be in the position to borrow the entire value of their home even if they paid the mortgage off long ago. 

The homeowner can only borrow the “principal limit.” This value is calculated based on the age of the youngest borrower and/or eligible non-borrowing spouse. 

It also takes into consideration, current interest rates, the home’s present value, and the HECM mortgage limit which in 2021 is $822,275.

The older a homeowner is, the higher principal limit they are likely to receive. Accordingly, the more the home is worth and the lower the interest rate, the more cash they will receive also. If the homeowner chooses a variable rate, the amount of cash could increase.

Variable rate options include the following:

--So long as at least one of the borrowers lives in the home, the borrower can receive equal monthly payments.

--These equal monthly payments are for a pre-selected or fixed amount of time agreed upon when signing the reverse mortgage paperwork.

--A line of credit.

--A combination of fixed monthly payments and a line of credit for the duration of your stay in the home.

However, if you’d rather go with a HECM that’s backed by a fixed interest rate, you are eligible to receive a single lump-sum payment. Keep in mind, the homeowner still needs to come up with the cash to maintain the home and make necessary repairs.

The Home’s Rightful Owner


If you’re wondering who owns the home once you qualify for a reverse mortgage, you own the own. But when the borrower moves or passes away, the mortgage must be paid in full. 

If it’s impossible to pay the mortgage, the lender retains the right to sell the home in order to recoup their money.




Reverse Mortgage Uses


A reverse mortgage can be used for a variety of necessities that are normally associated with aging homeowners. For instance, the funds can be used for supplementing retirement income. 

It can also be used for covering the costs associated with expensive home maintenance or repairs such as a roof or boiler replacement. Some folks need the extra money for paying mounting out-of-pocket medical expenses.

Reverse mortgages are the perfect solution for covering hefty expenses that would otherwise need to be covered by high-interest credit cards and/or lines of credit.

Requirement for a Reverse Mortgage


The first requirement for qualifying for a reverse mortgage is the primary homeowner must be at least 62 years old. He or she must have paid of most of the mortgage, or all of it. The home must be listed as your primary address and you cannot be behind on payments associated with any other federal loans.

You must also have enough funds available to pay your homeowners insurance and your property taxes. You will also be expected to actively participate in an information session that’s provided by an approved reverse mortgage counselor from the U.S. Department of Housing and Urban Development (HUD).



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