Reverse Mortgages is a topic that, many seem to believe to be a topic that they rather well not even begin to comprehend because they feel it to be so complex. But in simple words, it is:
“A special loan, for house owners above the age of 62 that gives them the choice to convert equity (from their homes) to money”
That is it, no more no less. Although there are a few points one needs to understand before they fully get to actually make use of what Reverse Mortgages have to offer, and those things have to do with how they work and how one can benefit from them.
To start, we first have to make clear what they are for and what they are not for. In its face, it might look an option that someone desperate person might take. But let us establish that it is not that at all. Other reasons why people stay away for it are that they seem to believe that it is somewhat of a trade of ownership of your house. In simple words, it is neither of those things. Do not be fooled into believing that it is some sort of an entitlement program.
The most prevalent Reverse Mortgage is the “Home Equity Conversion Mortgage” or HECM for short. A project begun by the Federal Housing Administration itself in the year of 1989 it is a program that differed from the normal mortgage system in the payment term. In the simple mortgage system you had to make scheduled monthly payments every month or so for 30 years. Bu in Reverse Mortgages the payment only becomes due when a set time has passed from the actual loan. If the owners continue to stay in their homes, continue to pay property taxes and along with that insurance, they will be liable to make monthly payments on the house.
Now what are the advantages?
You Retain Ownership
You do not forfeit ownership when you take a reverse Mortgage. As aforementioned you continue to live in your home and pay taxes, insurance etc. The only difference being that you will not have to make monthly payments but you will receive mail detailing interest, charges and other information but there will be no return coupon attached with it so you will not have to send it back with the payment.
Pay it back whenever
That is right, pay back the amount whenever you choose, in small payments or in full- without any repercussions. You also have the choice to deduct the interest on the mortgage like with a home loan. You can also pay it back full in cash whenever you choose. The loan is to be paid back until the full amount is returned, obviously, or when the borrower’s last surviving family member is no longer able to stay in the residency on which the Reverse Mortgage was taken. The heir will have a total of 12 months to pay back the loan.
Easy Qualifications
The most obvious qualification for a reverse mortgage is to be 62 years of age and above and to be a permanent resident of the United States. There are no credit score requirements nor any income requirements that need to be fulfilled and ofcourse, no monthly payments. The amount of the loan may depend on the age of the youngest person living in the house and the condition of the house that affects its value, but other than that it’s just simple living. You pay your property taxes and insurance and you’re in the safe zone.
How The Loan is Paid Off:
If the loan isn’t paid off by the borrower themselves, then it is not due until the last person to borrow the money passes away or fails to occupy the residence as a primary residence. In this case the heirs will have up to 12 months to refinance or just to pay back the loan to the lender. If the heir decides not to act in this situation, the lender will have no choice but to have foreclosure on the home. The house will be put up for sale and if by any chance the sale of the residence does not yield sufficient funds that the lender lent, the government insurance that the borrower had paid for as a part of the reverse mortgage loan will make up for the remaining estate. The lender will have all fees paid back to them by the mortgage insurance fund.
It’s a Smart Decision for Tough Economic Times
If someone isn’t doing as well off with their current economic structure and if income isn’t up to required, a Reverse Mortgage is a great way to help you stay in your own residence. Sometimes situations arrive where you might have to make tough decisions that might include selling your residence. Not with Reverse Mortgages.
Considerations Before Going for a Reverse Mortgage
Reverse mortgages are not for anyone who intends to stay in their residence as a permanent resident for a few years. It also isn’t for anyone who isn’t ready to pay the usual prices used to set up a reverse mortgage.
The borrower must have counseling on the matter to make sure that they understand the topic thoroughly, the Federal Housing Authority advises. It can be a 3rd part counselor and once counseling is done, the counselor will give you a certificate which you will then sign and send to the lender.
One must know that taking a Reverse Mortgage might affect eligibility for several need based state or local services, even though it does not affect Social Security or Medicare. This isn’t limited to Reverse Mortgages, but to any external funding that might disrupt qualifications.
All Reverse Mortgages have the same safeguards so one should not be persuaded by any sales pitch made by banks and brokers. There is only one federally insured HECM so that should give any borrower enough confidence to not settle for less money and higher interest rates.
Learn more about reverse mortgages at these online resources:
All Reverse Mortgage®
https://reverse.mortgage (Excellent learning area in menu)
HUD FHA Reverse Mortgage for Seniors (Government Non-Profit Resource)http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome
