What is a Reverse Mortgage?
A Reverse Mortgage is just like a line of credit without a monthly mortgage payment. It is a program that allows homeowners age 62 and older to convert the home value into tax-free cash while maintaining homeownership.
In other words, the home pays back the homeowner so that the money received can open new financial opportunities. Best of all, the homeowner is never forced to leave the security of the home as long as they continue to live there.
What are Qualification Requirements?
To qualify for a Reverse Mortgage:
- One homeowner must be at least 62 years old,
- Occupy the property as their primary residence,
- Pay off any existing mortgages at the time of settlement, and
- Attend a HUD-approved housing counseling session.
How Can the Money be Used?
Money obtained from a Reverse Mortgage can be used for any reason. Some of the most common uses include:
- Paying off existing mortgages
- Paying off credit card debts
- Making home improvements
- Purchasing a new home
- Supplementing income
- Paying for in-home health care
- Traveling
- Buying long-term care insurance
- Helping family members
How Much Money is Available?
The amount of money available depends on three factors: the age of the borrowers, the appraised value of the home, and current interest rates.
How is the Money Disbursed?
The Reverse Mortgage offers flexible options, so the homeowners decide exactly how they want to receive the money. They may combine any or all of these options and change payment plans whenever necessary to customize a program that best meets their needs. The payment options include:
- Lump Sum Payment: All or a specified amount of the money is available at once.
- The line of Credit: The money remains in an account until a need arises. When left in the account this money will grow, giving the borrower access to more funds in the future.
- Tenure Plan: A certain amount of money is available monthly for as long as the borrower lives in the home.
- Term Plan: A certain amount of money is available over a specified number of years.
How is the Reverse Mortgage Repaid?
The loan becomes due with interest when the borrower no longer lives on the property. The borrower, or the estate, may pay back the loan by either selling the property or refinancing the mortgage.
If a Current Mortgage is in the Home, Can a Reverse Mortgage be Done?
Yes, in fact, many homeowners do a Reverse Mortgage to free them from this monthly obligation. The only condition is that there must be enough money from the Reverse Mortgage to pay off the current mortgage. Any money that is left over goes to the borrower for any purpose.
Can a Reverse Mortgage be Used to Purchase a Home?
Yes! It can be a great option when downsizing. Contact Reverse Mortgage Answers, LLC for more details.
How is the Government Involved?
The Federal Housing Administration (FHA) insures the loan. If the loan balance is greater than what the property is worth, the borrower is not responsible for the money beyond the current market value of the home. FHA will pay for any shortfall. In contrast, if the loan balance is less than the value of the home, the homeowner or the estate will only have to pay the loan balance, and the remaining money goes to them.
What Happen When One Spouse Passes?
If one spouse has passed and the surviving spouse is listed as a borrower on the Reverse Mortgage, he or she can continue to live in the home, and the terms of the loan do not change.