19 Sep Is a Reverse Mortgage Right for You?
If you are a homeowner who is 62 years or older, you may qualify for a reverse mortgage. This enables you to convert part of the equity in your home into cash. Older adults open reverse mortgages for a number of reasons. Some people use the money to pay for monthly costs, do home repairs, pay healthcare expenses, or to have a cash cushion in the bank in case of an emergency. You can also use the money to pay off an existing mortgage on your home–as long as you live in the home.
How Reverse Mortgages Work
Unlike a traditional mortgage, a reverse mortgage is a loan in which the lender pays you. This is done by the lender taking part of the equity in your home and converting that equity into payments to you. Depending on the type of reverse mortgage you open, the money disbursed to you can be in the form of monthly payments, a line of credit, or a lump sum. The money you receive is usually tax-free and you don’t have to pay it back as long as you live in the home.
You still hold the title to the property and you must pay yearly real estate taxes. Fire/hazard insurance must also be maintained. Social Security and Medicare benefits are usually not affected. If you can no longer live in your home, SELL IT, or when you die, the loan must then be repaid either by you or your estate. Often the loan is paid back to the lender by selling the home.
Types of Mortgages
There are a variety of reverse mortgage options available to you. Talk with your lender to find out what is the best option for your particular need:
- Standard Home Equity Conversion Mortgage (HECM): The most common type of reverse mortgage, a HECM is federally insured and back by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). A borrower can qualify on a home’s value up to $679,650.
- Single Purpose Reverse Mortgage: This type of reverse mortgage is offered by some non-profit organizations and local/state government agencies. As its name implies, this product is to be used for a specific purpose (home repair/remodeling) or to pay a debt. These reverse mortgages tap a smaller amount of equity from your home.
- Proprietary Reverse Mortgage: This option is for senior homeowners who have high value homes over the $679,650 limit for HECM’s. These loans are available from private lending companies and banks.
Just like with a traditional mortgage, there are fees involved with opening a reverse mortgage. This includes the costs for an appraisal, credit report, document preparation, escrow, title insurance, pest inspection, and survey. There is also a charge for a loan origination fee which varies depending on the value of your home. In addition, there is interest charged on the loan but this is not paid back until the sale of the home.
If you are considering a reverse mortgage, do your research and explore your options. Opening a reverse mortgage can be a complicated process. Furthermore, it uses the equity in your home, which means its value will be lower when you pass it on to your heirs.
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