Reverse Mortgage Loans
A reverse mortgage is a loan taken by senior citizens on the equity of their home—a loan that they will not pay back as long as the home is their principal residence. The proceeds are tax free and there
are no monthly mortgage payments. The reverse mortgage money can be taken in several ways:
- Equal monthly payments
- A line of credit,
- A combination of the two.
While a reverse mortgage and a home equity loan both require that the borrower have equity in the home, a reverse mortgage is different from a home equity loan. The reverse mortgage is based on age, current interest rate, equity, and the value of the home and is not based on income; whereas, a home equity loan is based on the borrower's qualifications for a loan, such as income and good credit standing. With a reverse mortgage there are no monthly mortgage payments, but with a home equity loan there are. Also, with a Reverse Mortgage there is an option whereby borrowers can set up a line of credit that grows over time and can be utilized in the future.
Currently, the Reverse Mortgage that is available is the Home Equity Conversion Mortgage (HECM) which was created by the federal government and managed by the Department of Housing and Urban Development (HUD). These loans are insured by the FHA, Federal Housing Administration, and require that the borrower:
- Be a homeowner
- Be 62 years or older
- Must live in the home as a principle residence
- Receive HUD approved reverse mortgage counseling
Along with no payments, another advantage of a reverse mortgage is that there are no restrictions on how the loan proceeds must be spent. Borrowers may use the proceeds of their reverse mortgage to pay bills, purchase a car or another home, travel, or use the money however they see fit. The terms of the loan specify the length of the loan. Although most borrowers opt for the reverse mortgage with no set term (reverses mortgages actually end at age 150!), borrowers can choose a set term of years, i.e., 10 years, 15 years, or 20 years, etc. It all depends on the needs of the borrower. If a specified term is chosen for your reverse mortgage and the term ends, no repayment is required and you can also remain in your home.
So does this all sound too good to be true?
For the right person a reverse mortgage can be a life changing experience. It can provide peace of mind and freedom from worry, and it can change your financial picture. If there is enough equity in your home, your current mortgage balance can be completely paid off by the reverse mortgage. It all depends on age, the appraised value of your home, current interest rates, equity in your home, and the reverse mortgage program you choose.
However, a reverse mortgage isn’t for everyone, and it does draw from the equity in your home. And even though there are no mortgage payments required, just as with any mortgage there are closing costs involved. In 2010 HUD announced a new program called the Saver HECM (Home Equity Conversion Mortgage), a Reverse Mortgage option which seeks to reduce borrowers’ closing costs.
There are different reverse mortgage programs available so be sure to speak with a Reverse Mortgage Specialist who will be able to answer your questions. Weigh all your options and possible risks, determine a financial plan for the future, and look at other alternatives first. Discuss reverse mortgages with your family and trusted advisors. An educated decision is always best.
Advisors Mortgage Group has licensed Reverse Mortgage Specialists who are trained professionals that can answer your questions, address your concerns, and provide you with a FREE (no obligation) consultation. Advisors Mortgage and each mortgage specialist is governed by the banking department in their state as well as a strict code of ethics set forth by Advisors Mortgage. So give us a call! We are here to help.
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