What is a reverse mortgage?
Reverse mortgage loans are a way for older homeowners to convert their home’s value into tax-free cash, without having to sell or move.Insured by the U.S. government, the Department of Housing and Urban Development (HUD) ,(HECM) allows Homeowners who are 62 or older to borrow against the equity of their homes.(Borrower should seek advice from a tax professional.)
Here’s how it works:
Qualifying homeowners can choose to receive tax-free payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit.
No repayments are required while a borrower lives in the home.
Social Security and Medicare benefits may be affected
Reverse mortgage lenders recover the loan amount, plus interest when the home is sold (because owners choose to move, or pass away)
When the home is sold and the reverse mortgage is paid off, any remaining equity will belong to the heirs.
Keep in mind:
Reverse mortgage borrowers continue to own their homes. Because there are no monthly loan payments due, the amount owed grows over time. That means that the amount and the remaining equity in the home decreases.
Borrowers must continue to pay homeowner’s insurance and property taxes during the loan period. It is also the borrower’s responsibility to keep up with repairs. In fact, if a borrower fails to adhere to any of these obligations, it may become immediate cause for the loan to become due. In which case, it would become payable in full.
Do I qualify for a reverse mortgage?
You must be age 62 or older. And you must occupy the home as your primary residence – Borrowers must own the home outright or have a low enough balance on the existing mortgage that it can be paid off from the proceeds of the reverse mortgage.
Each borrower listed on the title must apply for the reverse mortgage loan, attend a HUD counseling session and sign the loan papers. The HUD counseling is either handled in person, or over the telephone.
Does my home qualify for a reverse mortgage?
First of all, your residence must meet HUD standards. The reverse mortgage must also be the only mortgage held against the residence. That means that if there is a current mortgage on the property, it may be able to be paid off with the proceeds of the reverse mortgage.
Examples of qualifying homes:
Single Family One-Unit Residences
2-4 Unit Owner-Occupied Residences
Ask your lender if these residences qualify:
Planned Unit Developments
How is the loan amount determined?
-The amount of the loan is based on:
-The age of the youngest borrower
-The appraised amount of the property
-Amount of loan is based on expected rate for the loan
What are my reverse mortgage options?
HECM — The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, governs how much HECM lenders may loan to qualified borrowers, and limiting loan costs. Because this is a government insured program, loan counseling is required, by an approved HUD counselor.
HECM offers 4 draw options:
-Monthly payment to borrower.
-Line of credit
-Any combination of the above 3
When you purchase your home, you are making a significant financial investment. Over the years, as you continue to pay off your mortgage, you build equity. A Home Equity Conversion Mortgage (HECM) is a federally guaranteed reversed mortgage program that allows seniors 62 years of age or older to tap into that equity. A reverse mortgage is designed to help seniors transfer some of the equity they have built into cash. In some instance, seniors may wish to use a reverse mortgage to purchase a more suitable home. We understand that there are many reasons why you may be considering a reverse mortgage. It is our goal to educate our clients throughout San Antonio, Austin, and Corpus Christi so that they can determine if a reverse mortgage is the best choice for their financial goals.
Everyone who is interested in a reverse mortgage is in need of cash for some reason. For some individuals, this can be due to sudden unexpected expenses. Others may need additional cash for larger expenses such as home repairs or remodeling. Some may be interested in purchasing a new home entirely. There are many reasons why you may want to use a reverse mortgage. Some of the most common reasons include:
-To supplement social security payouts or other types of fixed income.
-To delay social security payouts.
-To remodel a home to be more accessible.
-To make vital repairs to an aging home.
-To pay monthly expenses such as groceries and medications.
-To pay for medical care or other live-in care.
-To purchase a new home that better meets your physical needs.
-To purchase a new home closer to family.
Once you have decided that a reverse mortgage is the right choice for your particular financial needs, you will have to determine the type of payout that makes the most sense for those needs.
Only fixed-rate reverse mortgages can take advantage of a lump sum payout. Note that you will only be able to withdraw up to a certain amount allowable under a first-year cap. In most cases this will be 60% of your HECM initial principal limit. By choosing a lump sum payout, you will automatically forfeit the other 40% of your principal limit.
Monthly payout options include fixed-term and tenure payouts. The tenure HECM payout is available to you each month for as long as you or your spouse occupies the home. The fixed-term payout option gives you a monthly payout for a predetermined period of time. Once your term reverse mortgage payout period is complete, you are still able to live in your home as long as you continue meet your obligations such as paying property taxes and homeowners insurance.
-Line of Credit
A line of credit options allows you to withdraw cash at your leisure, as long as you don’t exceed your first-year cap in the first year. You are only charged interest on the funds you withdraw, and your credit line grows over time as you retain your HECM.