As a potential or current retiree you have put in years of hard work and are rightly ready to enjoy the rest of your life, without having to struggle to meet expenses. However, unforeseen circumstances and costs can derail that dream. Luckily, we have a solution. Whether you need money simply to be prepared for the future, to pay medical bills or any other expenses, a reverse mortgage can convert your home equity into cash. We’re here to help you get the funds you need to make your retirement comfortable.
Reverse mortgages were conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds can be used.
The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. As long as the borrower lives in the home he or she is not required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance and homeowners association dues (if applicable).
A reverse mortgage allows you to convert equity in your home into cash. When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you. Reverse mortgages take part of the equity in your home and convert it into payments to you. The money you get is usually tax-free. Generally, you don’t have to pay back the money for as long as you live in your home. When you die, sell your home, or move out, you, your spouse, or your estate would repay the loan.
A reverse mortgage allows you to convert equity in your home into cash. When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you.
There are three kinds of reverse mortgages: single purpose reverse mortgages – offered by some state and local government agencies, as well as non-profits; proprietary reverse mortgages – private loans; and federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs).
If you get a reverse mortgage of any kind, you get a loan in which you borrow against the equity in your home. You keep the title to your home. Instead of paying monthly mortgage payments, though, you get an advance on part of your home equity. The money is almost never taxable, and generally won’t affect your Social Security or Medicare benefits. When the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence, the loan has to be repaid. In certain situations, a non-borrowing spouse may be able to remain in the home.
Everything you need to know about Reverse Mortgages
A reverse mortgage allows you to convert equity in your home into cash. When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you. With a reverse mortgage, the homeowner withdraws a portion of the equity available in a home they already own.
Reverse mortgages are only available to consumers ages 62 and older. This loan was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction how reverse mortgage proceeds can be used.
This raises the question: why would you want to borrow against your home equity that you have worked so hard to obtain?
As with many financial decisions; many borrowers get a reverse mortgage out of necessity. The executive vice president of the National Reverse Mortgage Lenders Association (NRMLA), Steve Irwin says, “They think [of] how they are going to pay for healthcare, fix the roof, pay the property taxes or have enough money to outlive their retirement,” he says. “A reverse mortgage provides solutions to these issues and many others, so that people can live more financially secure lives as they age.”
How can a Reverse Mortgage help me?
If you’re like many seniors, your largest asset is your home. A reverse mortgage allows you to turn that equity into cash to help fund your retirement. You can use the funds received through a reverse mortgage for nearly anything.
- No loan repayment for as long as you live in the home.
- Proceeds can be used for virtually anything.
- Funds can be used to deal with costs and help to enjoy retirement.
- No income, medical or credit requirements.
- A tax-advantaged way to pass on part of your estate today.
- A spouse not listed on the mortgage can remain in the home after the borrower dies.
Am I eligible for a Reverse Mortgage?
If you’re asking yourself whether a reverse mortgage might work for your situation, understanding how you can qualify is a good place to start. As we mentioned, there is an age requirement; you must be age 62 or older to apply. However, if one spouse is under 62, you can still obtain a reverse mortgage if you meet the other eligibility criteria. For example:
- You must have a single primary lien to borrow against, or own your home outright.
- If you do have an existing mortgage, part of the proceeds of the reverse mortgage must be used to pay it off.
- The home you are mortgaging must be your primary residence.
- You must keep up on property taxes, homeowner’s insurance and other required fees such as homeowners association dues.
- The property must be maintained and kept in good condition.
- Your home must be a single-family home, a multi-unit property with up to four units, a manufactured home built after June 1976, or a townhouse.
How does a reverse mortgage work?
It is important to understand how a reverse mortgage works before you commit to one. For example, the amount you can withdraw depends on the age of the youngest borrower or eligible non-borrowing spouse, current interest rates and either the appraised value of your home or the HECM FHA mortgage limit ($726,525 in 2019), whichever is less.
The Home Equity Conversion Mortgage (HECM) is the most popular type of reverse mortgage and is insured by the federal government.
It’s up to you how you receive your funds. We’ll go through several options. If you choose a HECM (Home Equity Conversion Mortgage) with a fixed interest rate, the disbursement will be a lump sum payment. On the other hand, opting for a reverse mortgage with a variable rate, gives you the following choices:
- Equal monthly payments for a set period of months (agreed to ahead of time).
- A credit line that can be used at your convenience until it is exhausted.
- A combination of fixed monthly payments and a line of credit for as long as you’re living in the home.
- A combination of fixed monthly payments and a line of credit for a set length of time.
The money you borrow with a reverse mortgage only needs to be repaid when the borrower dies or moves out of the home for any reason. Also, you will never owe more than the home is worth regardless of the amount borrowed (if, say, the value of the house has decreased over time). If the balance is less than your home’s value at the time of repayment, you or your heirs keep the difference.
How much does a reverse mortgage cost?
Most HECM mortgages let you finance closing costs into the new loan, which can mean no out-of-pocket money will have to go towards getting the loan.
The Bottom Line
A reverse mortgage can help you cover living expenses without having to move out of your house. If you need money to pay for healthcare, food or just want more experiences as you enjoy retirement, a reverse mortgage can be a game-changer.
Contact HomeLend USA at 248-781-9400 to get started today!