A Reverse Mortgage, also known as a Home Equity Conversion Mortgage (HECM), is a select type of mortgage that a homeowner over 62 years of age could receive cashflow against the equity they have in their home.
The payment options offered by a HECM can be received in the form of:
- Terms -fixed monthly cash for a fixed period
- Tenure – fixed cash for as long as you live in your home
- Line of credit – money is available to borrow as needed
- Lump-sum amount: – you get all at once when your loan closes, the interest rate is fixed in this form
If you are an older American, retired, or in case you are going to retire soon, you must understand the importance of a Reverse Mortgage.
Your day job may end someday, but the overall expenses you carry throughout your life may not be easy to cover after your retirement, these expenses never end or might increase in older age.
So to help older Americans overcome their financial issues, the concept of Reverse Mortgages was introduced.
With a traditional mortgage, the bank is the owner of your house against your loan. In a Reverse Mortgage, you remain the owner of your home and receive payments from the lender on a monthly or tenure basis.
According to the National Reverse Mortgage Lenders Association, homeowners aged 62 or more have US 7.2 trillion in home equity as of the third quarter of 2018. This number is the highest since 2000 when the measurement began.
Typically, your home equity is only usable if you sell or refinance your home. A Reverse Mortgage allows you to remain in your home, keep ownership of your home, and receive payments based on the equity in your home.
How Reverse Mortgage Work?
Let’s say you are retired, and you don’t have much income to carry out your monthly expenses, but you are a homeowner.
In this case, you can Reverse Mortgage your property, where the lender pays you monthly payments to carry out your expenses.
Payments made by the lender are usually tax-free.
Reverse Mortgages were created specifically for seniors to help them age in place. If you feel you don’t have enough retirement savings or the monthly cash flow to live a comfortable retirement a Reverse Mortgage could be the answer.
What Happens to Reverse Mortgage When You Die?
If you are an older American using a Reverse Mortgage and you pass on there are usually three options:
- Your legal heirs could pay off the loan to the lender, and the lender will transfer ownership of the house to the heirs.
- The lender could sell your property to the market, and any remaining amount will be transferred to the legal heirs.
- The third option is to deed the property back to the lender.
A trusted lending service will help you sort out these points beforehand.
So get in touch with a professional, they will help you out and will guide you through all your questions. You have options and only move forward with the decision you feel is best for you and your family.
What Happens To My Spouse in a Reverse Mortgage?
Your spouse is legally protected when you have a Reverse Mortgage. If you pass on your spouse can remain in the home for the rest of their life without the burden of a monthly mortgage payment.
Why should you get Reverse Mortgage?
After doing years of service and retiring, eventually, older Americans deserve to live in peace.
Unfortunately, many people don’t have enough assets that they can use after retirement.
The only asset option most older Americans have is their home.
So to meet the daily living, healthcare expenses, home renovations, one of the best options available to seniors is a Reverse Mortgage.
A Reverse Mortgage is the best way to keep living in your house and at the same time, generate cash flow from it.
As long as you are paying taxes, doing maintenance of your home, a Reverse Mortgage can help you live a more comfortable retirement.
How Much Can I Borrow?
The answer to this question depends on the lender you are working with and the payment plan chosen by you.
As for HECM, the amount will be based on the youngest borrower’s age, the interest rate of the loan, and the lesser of your home’s appraised value or the FHA’s maximum claim amount, i.e., $679,650 for 2018.
Fortunately, the limit has been raised again for 2019, which we will discuss later in this article.
Can I Get Out of a Reverse Mortgage?
If you opt-in for a Reverse Mortgage but change your mind later, you have the option to get out of the program.
Most of the loans come with a “cooling-off period.” You are provided with three days to sign out after signing the documents. No fee is charged, and usually, there is no penalty.
When a borrower chooses to change their mind, they are supposed to inform their lender in writing.
After that, it’s the lender’s responsibility to guide you and pay all the funds within 20 days.
If you feel there is even a slight chance you could change your mind it is probably best to wait until you are fully comfortable moving forward. At the very least be sure to discuss your options with your lender.
Reverse Mortgage Lender Limits
The loan in a traditional HECM used to be as low as $200,000. It was increased to $625,500 after congress passed legislation in 2009. In January 2017, the limit was again increased to $636,150. Recently, in the year 2019, the limit is at $726,525!
Rules Governing Reverse Mortgages
Like with other types of mortgages, a Reverse Mortgage also comes under regulations and restrictions.
Houses built on or after June 15, 1976, are eligible for a Reverse Mortgage.
The age limit is set to be 62 to be eligible. Borrowers need to pay an origination fee, an up-front insurance premium, and services fees.
Some fees may be able to be reduced. A good Reverse Mortgage lender should look into these options for you.
- A reverse mortgage is a type of loan offered to Americans aged 62 and older.
- This type of mortgage allows homeowners to convert their home equity into monthly payments or as required by their needs.
- Reverse Mortgages are insured federally and debt can not be passed down to your heirs if the loan balance exceeds the homes value when the loan is due.
- A reverse mortgage is potentially the best solution if your largest asset is your home, and you are unable to meet your monthly needs or retirement goals.
- A reverse mortgage is a flexible type of mortgage and can be customized according to the needs of the consumer.
Reverse Mortgage Rates
It’s crucial to find an experienced team comprised of professionals from finance, mortgage, and related fields to receive the best rates and great plans according to your needs.
There are exclusive programs that can be tailored, especially for you. The lender you choose should work every available option to charge less as compared to other competitors.
You should always choose a lender with the best customer service and who believes in providing quality and uses a personalized process specific to your needs.
Do your due diligence and contact multiple Lenders if possible. Just get a general feel for their understanding and willingness to help.
This can be a task, but the Lender you choose is essential to getting the right Reverse Mortgage for your personal needs.
We highly recommend Lenders that deal exclusively with Reverse Mortgages as they seem to be the most up-to-date about the products that are offered.
Can You Lose Your House With A Reverse Mortgage
This is one that has much confusion. Most of the Reverse Mortgage foreclosures were actually due to the nonpayment of the home’s taxes and insurance.
With any mortgage, if you don’t pay your taxes and insurance, you will be foreclosed on, and that is what was happening in most cases.
Don’t let this scare tactic keep you away from just contacting someone and learning about Reverse Mortgages. It is an excellent tool for your retirement.
A Reverse Mortgage is a helpful and supportive financial solution for homeowners.
So you correctly understand the concept and functioning of a Reverse Mortgage be sure to contact a trusted Reverse Mortgage professional.
If you feel a Reverse Mortgage can help you in retirement, you’re a homeowner aged 62 or older and have around 50% equity or more in your home, then let us help!
We aim to take some of the stress off of finding a reputable Reverse mortgage company since we have a Rolodex that may help.
If interested go to our Reverse Mortgage Recommendation page to get more details and get connected.