A reverse mortgage is really a unique lending product for homeowners over 62 who wish to take advantage of the home equity they've worked hard to build up. But is really a reverse mortgage the best choice for you?
To help you comprehend the ins and outs of reverse mortgages, let's go over exactly who qualifies and discuss some pros and cons.
What exactly is really a reverse mortgage?
Put simply, a reverse mortgage is a kind of home equity loan that does not require any loan repayments unless the borrower sells their house, permanently moves away, or dies. It's restricted to people who are over 62 and have at least 50% equity in their home.
Since reverse mortgages continue to be loans, they need to be paid off when you stop residing in your house or maybe another maturity event happens. The borrowed funds arrives entirely once it reaches maturation – and it's usually paid by selling the home it had been used for.
You or perhaps your estate (typically your kids or a spouse) will be in control of working with the loan servicer to create a payment plan. You can make payments to your reverse mortgage before it reaches maturation.
How can you get a reverse mortgage?
Seniors have three options for obtaining a reverse mortgage:
1. A house equity conversion mortgage (HECM). This is provided by the Federal Housing Administration. The FHA has certain restrictions on loans that may exclude many seniors.
2. A proprietary reverse mortgage (also known as a jumbo loan). Provided by private lenders. These normally have fewer restrictions and higher loan amounts. They are great for seniors that do not be eligible for a HECMs.
3. A single-purpose reverse mortgage. Offered by nonprofits and local governments. These are smaller loans expressly for renovations or property tax deferments. They are only accessible in lump sums.
Through an HECM, you are able to decide to receive payments these ways:
1. One lump sum payment. You'll get all of the money upfront. Including a fixed interest rate.
2. Monthly/term payments. You are able to choose monthly payments for a few months or until you stop residing in your home. These options have a variable interest rate.
3. A credit line. You'll have a line of credit available as you need it. It has a variable rate of interest, but you'll only pay interest on what you actually borrow.
You can combine the line of credit option with either of the monthly payment options.
A private lender can provide you options similar to the FHA's reverse mortgages, but often for higher amounts and different terms which may be more amenable to your lifestyle. They're known as “jumbo loans” since they are intended for homes which are more vital than the FHA's borrowing limit. In 2023, to limit is $765,600.
What are the benefits?
Emergency funds
Cashing out some of your home equity gives you access to a lot of capital quickly. You should use that to cover sudden bills, taxes, medical expenses, or home repairs.
Basic living expenses
A reverse mortgage really should not be your main source of retirement income, but it's a great supplementary source of income while you enjoy senior living!
Investment capital
Proprietary and HECM options allow you to make use of your money as you see fit. Which means you may make investments in real estate or other ventures thanks to your home equity.
Non-recourse loan
Reverse mortgages are non-recourse loans. Which means whoever manages paying it off once your loan reaches maturation won't have to worry about paying extra when the loan amount winds up exceeding your original home value.
Continued home ownership
You'll still enjoy full ownership of your house. Your heirs or living spouse will even own the house if you bequeath it for them once you perish.
Are there any downsides?
Medicaid eligibility
Getting a reverse mortgage could affect your eligibility for Medicaid. To qualify for Medicaid, individuals must possess under $2,000 in liquid assets (or $3,000 for couples) at the end of a month. Reverse mortgage payouts could put you above to limit.
Continued financial obligations
You're still on the hook for property taxes, repairs, insurance, etc. You will need to continue meeting these financial obligations while also meeting the loan terms. You will also need to pay loan settlement costs and other fees, which may have in the future out-of-pocket.
If you can't meet loan requirements, pay property taxes, or meet other housing financial obligations, you're still vulnerable to foreclosure. A reverse mortgage isn't like waving a magic wand that makes taxes, fees, and insurance payments disappear.
Variable interest rates
If you select payment per month or line of credit HECM options, you will be subject to variable interest rates. Proprietary and single-purpose options might have different standards; contact your loan servicer for more information.
Scams
There are some scam risks out there. When looking at proprietary reverse mortgages (which are offered by private lenders), be sure to read all the terms of the loan prior to signing and ask plenty of questions. Be wary if something seems amiss or too best to be true.
It might help to possess a trusted relative or financial advisor take a seat using the numbers to guarantee the math works out – and thus that you're not tied to surprises down the road.
Who qualifies?
You have to meet certain requirements to become entitled to a reverse mortgage. While different lenders have different requirements, there's two common factors: you must be over 62 and you must fully own your house (or at best most it).
If general, you have to:
o Be 62 years or older. If a person spouse is younger, they ought to be left from the loan.
o Borrow just for most of your residence. Secondary properties don't qualify.
o Own your house outright and have built a minimum of 50% equity in your house.
o Meet certain property requirements. Some lenders require that your house is inside a certain condition before approving you for a financial loan. Seek advice from your lender for specifics.
You can see much more about HECM-specific requirements here. Otherwise, ask your loan servicer if they have any special conditions for borrowers.
Still have questions? Contact us
Associates Mortgage loan is proud to provide proprietary reverse mortgages to Florida seniors seeking to live out their retirements comfortably. We're also pleased to offer assistance with applying to other reverse mortgage programs. The team at Associates Mortgage loan is able to answer the questions you have or get the reverse mortgage application started. Just call us at (813) 328-3632 or click the link to make contact with us.