Reverse Mortgage
A reverse mortgage is the perfect solution for retired homeowners who want to stay in their home.
What Is A Reverse Mortgage?
A reverse mortgage is a type of home loan that enables homeowners to remain in their homes during retirement without having to make monthly mortgage payments. The homeowner is still responsible for property taxes, property insurance, HOA dues (if applicable), and maintenance.
Officially, it’s referred to as a Home Equity Conversion Mortgage (HECM), and homeowners who are 62 years or older are eligible for the program.
Reverse Mortgage Benefits
No Mortgage Payments: A homeowner who has a reverse mortgage never has to make a mortgage payment again. The amount the homeowner owes (balance and interest) is paid in full when the home is sold.
Tax-Free Cash: After you close on a reverse mortgage, the lender provides you with tax-free cash from the equity in your home. There are numerous ways in which a homeowner can receive this cash.
Stay In Your Home: With a reverse mortgage, homeowners can remain in their homes for as long as they wish. The homeowner has the freedom and option to determine when they leave without financial pressure.
Non-Recourse Loan: The homeowner (or heirs) will never owe more than the home’s market value. Even if the amount owed is $500,000, and the property is only worth $250,000.
Reverse Mortgage Requirements
Here are the basic requirements of a reverse mortgage:
- 62 years old or older
- Own a primary home that has at least 50% equity.
- Demonstrate ability to pay property taxes, insurance, and maintenance.
If you meet the above reverse mortgage requirements, you might be eligible for a reverse mortgage.
Reverse Mortgage Example
A recently retired couple wants to remain in their own home as they age. Both are in their late 60s, and prior to retirement, they owed $50,000 on their current mortgage, with a home value of $900,000. They decide that a reverse mortgage is the best option for them and obtain a loan for $200,000.
They receive a lump sum of $150,000, and the remaining $50,000 goes to pay off their previous mortgage. Moving forward, they’ll have no mortgage payment and will be only responsible for property taxes, property insurance, HOA dues, and maintenance.
During their time in the home, the amount the couple borrowed accrues interest.
When the couple chooses to move into an assisted living facility (or if they pass away prior to that), the property will be sold to cover the amount owed (principal balance, accrued interest). Any remaining amount will be passed on to the couple or their heirs. If the balance owed is higher than the amount the property sells for, the couple (or the heirs) will not have to pay the difference.
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Reverse Mortgage FAQs
Does A Reverse Mortgage Impact My Social Security?
No, a reverse mortgage does not impact your social security.
Does A Reverse Mortgage Impact My Medicare Benefit?
No, a reverse mortgage will not impact your Medicare benefit.
How Can I Use The Proceeds From A Reverse Mortgage?
You can use the proceeds from a reverse mortgage on anything you want. Examples include home improvements, medical expenses and an automobile.
Is There A Mortgage Insurance Premium Associated With A Reverse Mortgage?
Yes, reverse mortgages do have an upfront mortgage insurance premium that is added to the loan balance. Like everything else, this is not paid until the property is sold.
Explore Some Of Our Other Popular Mortgage Programs
Conventional
A conventional mortgage is the most common mortgage program. Fannie Mae and Freddie Mac set the base guidelines.
Second
A second mortgage is a great tool to help people buy a home. It allows homebuyers to avoid mortgage insurance.