January 14, 2020
One among the biggest challenges that you need to face when you retire is replacing the steady income you have got become at home with throughout your operating life: particularly, your paycheck. Several people can have some sort of pension income, or will generate income from our 401(k) or other investments; and, eventually, we will count on at least some income from Social Security. But these numerous sources of income may not be sufficient to meet our day-to-day needs.
If you find that you are money-poor but house-wealthy, you might exploit a comparatively new program that has been approved through the U.S. Department of Housing and Urban Development (HUD), known as a reverse mortgage. This can be a type of loan that’s accessible to seniors, which releases the equity within the borrower’s home during a lump add or a series of payments. The lender will pay you, up front, for the equity you have got accrued in your home. You will not want to repay the loan till you progress out of your home, or sell your home, or pass away.
To be approved for such a loan, you must be 62 years old or older; you want to live in the house on which the reverse mortgage is taken out as your primary residence; any conventional mortgages should be paid off in full, or have low enough balances therefore that the proceeds from the reverse mortgage will pay them off; and you need to be financially ready to maintain the house — you want to still pay taxes, insurance, utilities, and different ongoing expenses.
You may maintain the title to your home for as long as you live there, and you can use the proceeds from a reverse mortgage in any method that you simply wish. If you are still living in the house and also the reverse mortgage loan is still outstanding once you pass away, your heirs can inherit your home, but your estate will still be accountable for paying back the loan. If your estate and your heirs do not have the money to pay the loan, the house in most cases can be sold, and also the proceeds from the sale can be used to pay back the loan. If there are excess proceeds from the sale once the loan is paid off, your heirs will keep the profit; if the sale worth is but the loan quantity, your heirs will not must pay the additional quantity due from their own resources; the lender, or the lender’s insurance coverage, will have to hide the difference.
Though reverse mortgages are a sensible method to get retirement income if your assets are primarily busy in your house instead of in money or investment accounts, there are disadvantages as well. The foremost frequent criticism of reverse mortgages is that they’re costly. Begin-up fees can cost $eight,000 or a lot of, and the interest that accrues on a monthly basis is treated as a loan advance. These sums will eventually want to be paid back, and they can return out of your home’s equity. It is quite potential that your heirs can end up with little or no equity in your house once you expire; if you intend to pass your home on to them as half of your estate, make sure that they understand this.
Also, reverse mortgage agreements are advanced and generally difficult to understand. You’ll need to seek advice from a financial advisor or different counselor before coming into into such an agreement. Don’t let a salesman talk you into an agreement that you do not fully understand.
A reverse mortgage isn’t a “magic bullet,” but one potential source of income during your retirement; be positive to weigh a reverse mortgage against alternative choices you’ll have before committing yourself.
Reverse Mortgage (HECM) vs. Home Equity Line of Credit (HELOC)
February 27, 2020
A Home Equity Line of Credit (HELOC) allows homeowners at any age to borrower against the equity of their homes. In the State of Texas borrowers using a HELOC can borrow up to 85% of the value of the home in the form of a line of credit.
With a HELOC, once a borrower accesses their line of credit they are required to make monthly payments to the bank. Because these loans are generally adjustable rate mortgages, the monthly payment can fluctuate over time.
With HELOC’s, the loan proceeds can also be used for any purpose but it was originated to be a cheaper alternative to other debt such as credit cards. Since these loans have monthly payments that can vary, these loans are best for younger people with a steady income. They are typically used to pay off high interest debt or to put children through college.
A Home Equity Conversion Mortgage (HECM) offered by TerraVista Mortgage, LP is a federally insured loan that allows homeowners 62 and older the opportunity to borrow a portion of the equity in their homes without any required monthly repayment. These loans are usually set up as lines of credit which allows the borrower to access cash as they need it. Although payments are always welcome at any time and in any amounts, no monthly payment is required and the loan is typically repaid when the last borrower permanently leaves the home and the property is sold.
Please note that although no monthly payments are required, the borrower is required to keep all property charges current. That is, they must keep all property taxes, insurance and HOA fees (if any) current and they must keep the property maintained.
The amount of equity that can be borrowed with an FHA insured reverse mortgage depends on the youngest borrower’s age, the value of the property and current interest rates.
Although the loan proceeds can be used for any purpose, the primary reason behind the FHA insured reverse mortgage program is to allow senior homeowners with considerable home equity and who are generally retired with reduced income, the ability to get extra cash as they need it without monthly payments.
Pros and cons of Reverse Mortgages (HECM) vs. HELOCs
Advantages of a Reverse Mortgage
No required monthly payments – the loan doesn’t have to be repaid until the last borrower permanently leaves the home. (property charges must be kept current)
A source of extra income during your retirement years without having to sell your home
You can never owe more than your house is worth and the debt is never passed on to your estate or your heirs
The unused line of credit is guaranteed to increase by the US Government regardless of the value of your home
Once the loan is originated the bank never looks at your income or credit again
Disadvantages of a Reverse Mortgage
Costs – closing costs are higher for a reverse mortgage vs. a HELOC
In the long run there may be less equity for your heirs to inherit when you die
Must be at least 62 years old to obtain a reverse mortgage
Advantages of a HELOC
Costs – usually less expensive than a reverse mortgage
Less expensive type of credit over most other sources of credit
Higher loan amounts
Disadvantages of a HELOC
You must make monthly payments until your HELOC is paid off
Typically HELOCs come due every 5 years or so and the bank will reexamine your income and credit to see if your HELOC can be extended
You could possibly owe more than your home is worth