Reverse Mortgage Access Home Equity and Delay Repayment
For people age 62 or older, their home equity could provide funds for property taxes, medical bills, or home improvements. As an older person, you might want to tap into your home’s value, but the prospect of immediately making payments on a home-equity loan discourages you. A reverse mortgage, however, could inject a large lump sum of cash into your budget without requiring immediate repayment.
This type of home loan is available if you own a home outright or only owe a small amount. After completing the new loan, you will receive cash from the lender. The loan will not need to be repaid until you die, sell the property, or cease using it as a primary residence. Income taxes generally do not apply to the money. Also, the distribution should not influence your Social Security or Medicare benefits.
What is a Reverse Mortgage?
A reverse mortgage can be an option for seniors to stay in their home and access their equity without payments. Learn more about how they work.
Top Questions to Ask About Reverse Mortgages
You may be wondering “What is a reverse mortgage?” With this type of financial arrangement, seniors remain in their home and receive supplementary income through a home loan. A reverse mortgage is commonly referred to as a home equity conversion mortgage.
In order to qualify, homeowners must be at least 62 and have equity in the home. The equity is used to provide extra retirement income for the senior. Seniors can eliminate their monthly mortgage but must still commit to paying taxes and insurance on the property.
What is a reverse mortgage best suited for?
The reverse mortgage option may not be for everyone. It is ideal for people who can afford the cost of maintaining their property. These seniors shouldn’t be planning on moving anytime soon. It is best for those who need additional cash flow while still living in their current home.
What kind of properties are eligible?
There are only a few types of properties that qualify for reverse mortgages. The property must be a single-family home, condominium, townhome, or multifamily dwelling with two to four units. The standards for these properties must satisfy property standards established by the FHA.
When does the loan get repaid?
The borrower does not have to pay back the loan until they move out. The loan requires that no monthly payments be made toward the balance. If the owner continues to live in the property while paying insurance and taxes, no payments are ever required of the homeowner.
How much can money can you receive?
The amount borrowed depends on the age of the applicant. If a couple is applying for a mortgage together, the youngest applicant’s age is used. Either the appraised value of the home or the Federal Housing Administration’s designated mortgage limit of $636,150 is used to determine the loan amount.
How are the disbursements structured?
Payments can be paid out in several ways. Equal monthly payments can be disbursed for a fixed term for as long as the person continues to reside in the property. A line of credit can be established where unscheduled installments are made until no more credit is left. A combination of credit and scheduled monthly payments can be used to disburse funds for as long as the person remains in the home.
The loan is available for homeowners who want to continue to reside in their primary residence. Payments can be made out in a variety of formats. The homeowner is responsible for paying insurance and taxes, but no payments are required. A reverse mortgage is a viable option for seniors who want to supplement their cash flow.
Types of Loans
The first type available is known as a single-purpose loan. Its terms will restrict what you can do with the loan proceeds, such as pay property taxes or repair a home. If your income is low or average, you might qualify for a single-purpose loan.
The next option is called proprietary, and you would get this loan from a private lender. Generally, you will need to have a higher-value home to qualify.
The U.S. Department of Housing and Urban Development provides backing for your third option, the Home Equity Conversion Mortgage (HECM). The federal government insures these loans, and the proceeds may be used for any purpose. Factors that influence your ability to qualify for a loan include your age, loan type, and home value.
Expenses and Repayment
The responsibility of paying for homeowners’ insurance, utilities, and property taxes remains on your plate. You should factor these ongoing expenses into your budget for the duration of the loan.
Loan origination fees also apply when you get a loan. Most of these loans, except the HECM, depend on variable interest rates. A lender should provide you with a document itemizing the total annual cost of the mortgage.
Resources from a life insurance settlement company can provide further information about ways to ease financial challenges during retirement.
Reverse Mortgage Florida
How Does a reverse mortgage work?
Reverse mortgages help seniors stay in their home and access their equity without payments. Find out more about how they work.
What to Know About How Reverse Mortgages Work
If you are 62 or older, you may have heard about reverse mortgages, but how does a reverse mortgage work? Can it be as good as it sounds? Reverse mortgages are unique mortgages in that they are only available to seniors and do not have monthly payments like other loans. Instead, a reverse mortgage allows you to access the equity in your home as a lump sum, line of credit, or monthly payments. While a reverse mortgage can have many advantages, it also comes with drawbacks related to high closing costs and difficulties passing the home on to heirs.
How Does a Reverse Mortgage Work?
A reverse mortgage is a loan option available to homeowners 62 or older who live in their home and have the home paid off or can pay off their existing mortgage with the proceeds of the reverse mortgage. This type of loan allows you to access the equity in your home, and the money can be used for anything, usually without taxes. The amount you receive with a reverse mortgage will depend on many factors, including your age, interest rates, and the value of your home.
As long as you live in the home, you do not make any payments on the loan. A reverse mortgage becomes due when you sell the home, move out, or pass away.
Because there are no payments with a reverse mortgage, the loan balance will steadily climb with interest. By the time you pass away or leave the home, the balance may far exceed the home’s value. Heirs are never responsible for paying the mortgage; they can either allow the bank to keep the home and owe nothing or pay the balance (up to the home’s market value) to keep the home.
Who Benefits from a Reverse Mortgage?
A reverse mortgage can make sense if you plan to remain in your home, can afford other home-related expenses, and want to access your equity without selling or taking out a loan with payments. Reverse mortgages can be used to pay down debt, get rid of your mortgage, or supplement your income in retirement.
There are downsides to a reverse mortgage, however. The closing costs tend to be high, and because no payments are necessary, the loan balance will continue to rise. This can make it hard to pass the home to heirs as there is unlikely to be any remaining equity when the time comes.
If you are considering a reverse mortgage, it’s important to look at all of your options. For example, you may be able to sell your life insurance policy to access a lump sum of money to pay down debt or supplement your income rather than turning to a costly reverse mortgage.
Reverse mortgage pros and cons
Learn more about reverse mortgage pros and cons to help you make an informed decision in retirement.
Reverse Mortgage Pros and Cons to Consider
A reverse mortgage is a unique loan option available to homeowners 62 and older who own their home outright. With a reverse mortgage, you can unlock your home’s equity and remain in your home without loan payments. The following reverse mortgage pros and cons explain what you should know when considering if one is right for you.
Pros of a Reverse Mortgage
A reverse mortgage comes with several advantages. The proceeds of the loan can be used for virtually any purpose, such as enhancing your quality of life in retirement, paying down debt, supplementing your retirement income, or paying for long-term care. The proceeds will not affect Medicare or Social Security benefits.
With a reverse mortgage, you will not have mortgage payments to make. The loan will only be due if you sell the home, pass away, or move. In this case, the loan will become due, and you or your heirs can choose to pay off the balance and keep the home or let the lender take possession. While the balance of the loan will grow, you can never owe more on a reverse mortgage than your home is worth.
There are also many ways to receive the proceeds of your reverse mortgage. You can choose a line of credit to be used as needed, a lump sum of money, monthly payments, or some combination.
Cons of a Reverse Mortgage
Despite the benefits, reverse mortgages have significant drawbacks to consider. The balance of the loan won’t exceed the value of your home, but it can make it difficult to pass on the home to heirs because they will likely need to take out a new mortgage for the full value of the home to keep it. Reverse mortgages also come with high initial fees.
There are no payments to make, but you will be responsible for maintaining your home and paying homeowners insurance and property taxes. If you fail to meet these obligations, the loan can become due.
Before taking out a reverse mortgage, consider other options that may be available. For example, a HELOC may be more affordable if you are only going to stay in your home for a few years. Another option is a life insurance settlement. If you have a life insurance policy with cash value, your policy is an asset. Selling your life insurance policy can give you access to the money you need now without high upfront closing costs and other drawbacks of a reverse mortgage.
Reverse Mortgage Terms
Not sure about a reverse mortgage and how it works? Read on to find out what the various terms actually mean.
Do You Know These Reverse Mortgage Terms?
As you grow older, your financial strategy will change to accommodate your shifting lifestyle and needs. It can be difficult to pay rising medical bills or other health care costs. The amount you thought would be enough turns out not to be. Many senior citizens find that their savings, pension, and Social Security cannot pay their living expenses.
If this happens to you, it may be time to consider alternate sources of income. One such option is taking out a reverse mortgage on your home. A reverse mortgage works just as it sounds; it’s the opposite of a traditional mortgage, but it is a complex financial tool, and not everyone understands the various reverse mortgage terms.
What Is a Reverse Mortgage?
A reverse mortgage allows you to borrow against the equity of your home. You must be 62 years or older to qualify. You might own the home completely or have more than 55% equity. There are different types of reverse mortgage:
1. Single-purpose reverse mortgage – You specify the purpose for which you’ll use the funds from the loan. You cannot use it for anything else.
2. Home Equity Conversion Mortgages – These are federally insured, and the funds can be used for any purpose.
3. Proprietary reverse mortgage – These are private loans backed by companies. If your house has a high value and a low mortgage, you can get more funds for this type of loan.
Reverse Mortgage Terms of Payment
1. Single disbursement – You collect the entire loan amount in lump sum. You get the least amount in this type of payment.
2. Term option – Fixed amounts are paid for a specified term.
3. Tenure option – Fixed amounts are paid for as long as you live in the house.
4. A line of credit – You can draw whatever amount you choose when you want, up to the credit limit.
The actual amount of money you can get depends on many factors, like your age, the value of your home, and interest rates. If you need funds, make sure to compare all of your options when assessing if a reverse mortgage is a viable path for your particular situation.
Reverse Mortgage Calculator
Homeowners age 62 and older can increase their retirement income with a reverse mortgage. Learn more about this financial arrangement.
Seniors: Estimate Payments With a Reverse Mortgage Calculator
Older homeowners can qualify for a special type of home-equity loan called a reverse mortgage, which does not require monthly payments. Also called a home-equity conversion loan (HECL), this program is designed for those age 62 and older. Using a reverse mortgage calculator can help you determine if this type of home loan is right for you.
Candidates for a Reverse Mortgage
In addition to those who meet the age requirement, reverse mortgages tend to be most advantageous for those who plan to stay in their home during retirement and can afford to maintain the property. Your home must be your primary residence, and you must have a small enough mortgage balance that it could be paid off with the loan proceeds.
How Reverse Mortgages Work
This program allows you to access home-equity funds to pay off debt, cover unforeseen expenses, and/or improve cash flow. If you qualify for a reverse mortgage, you’ll receive a payment each month from your home equity. Once you sell the home, move, or pass away, the balance of the loan becomes due. You or your heirs can then pay the loan off and keep the home or let the bank keep the home.
Calculating Reverse Mortgage Terms
The amount of money you’ll receive from the loan and the amount that you will ultimately owe depend on a few factors. To calculate the terms of your reverse mortgage, you’ll need to enter the lump sum payment of the loan, the number of years you expect to draw money from your home equity, the amount of money you plan to receive monthly, and the interest rate.
For example, if you receive a lump sum of $50,000 and a monthly advance of $500 at an interest rate of 4 percent, you will owe a total of $148,412 after 10 years. An online reverse mortgage calculator allows you to explore different scenarios and determine the size of the loan you should take.
While a reverse mortgage is a smart retirement strategy for many homeowners, it’s important to consult with a financial professional to determine whether this type of loan is right for you.