Reverse Mortgages & HECM Loans
Traditional mortgages require that homeowners pay their lender on a monthly basis. The more money they pay, the more equity they gain. But many homeowners struggle to meet their mortgage and all their other financial responsibilities as they grow older. Because of this, the Home Equity Conversion Mortgage (HECM, also known as a reverse mortgage) was created.
Through a reverse mortgage, homeowners receive money from their lender instead paying money to their lender. Such a loan can be extremely beneficial for homeowners who are planning on living in their homes for the long-term and who are in need of extra financial assistance or security.
What is a Reverse Mortgage?
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A reverse mortgage allows eligible homeowners to access the equity in their homes in a variety of different ways, all of which are tax-free. A reverse mortgage can be incredibly beneficial for homeowners in need of financial assistance or flexibility who are planning to live out the rest of their lives in their home.
How do Interest rates work for a reverse mortgage?
Reverse mortgages come with either a fixed interest rate or an adjustable interest rate. These interest rates are based on various factors, including the current market, the homeowner’s credit score, the amount of the reverse mortgage, and more. Interest is calculated daily and added to the balance of the loan monthly. However, what makes a reverse mortgage unique is that the homeowner will not have to pay the loan back (or the interest on that loan) until the house is sold, the owner moves out of the house, the owner doesn’t meet their loan obligations, or the owner passes away.
One important thing to keep in mind is that borrowers who choose to receive their reverse mortgage as a line of credit will only pay interest on the funds withdrawn, not the amount that is available to them. In fact, the money available in the line of credit will actually earn interest.
How do payments work for a reverse mortgage?
The homeowner can receive their loan in several different ways. They can choose to receive monthly payments or a line of credit. However, the amount of cash available to the owner is based on the type of reverse mortgage that they choose. For example, an adjustable rate reverse mortgage requires that the borrower chooses from a line of credit or monthly payments.
If the borrower chooses a fixed rate reverse mortgage, access to funds is more limited. Although borrowers can still request monthly payments as well as a line of credit, they can only withdraw ten percent of their principal limit.
Benefits of a reverse mortgage
Homeowners eligible for a reverse mortgage can enjoy the following benefits:
Access Your Home’s Equity
A reverse mortgage allows homeowners to access the equity they've built up paying down their mortgage over the years without having to sacrifice their homeownership. This is hugely beneficial for anyone who needs or wants extra money. In fact, the money a homeowner can obtain through a reverse mortgage can be put towards renovations, which could improve the value of their home.
Free Up Cash Flow Into Retirement
Reverse mortgages were designed for senior citizen homeowners. The idea was to help senior homeowners live a more comfortable life, especially during retirement, by giving them access to their equity. The money received from a reverse mortgage can be used to supplement their retirement income and can be used however they want, whether it's to pay down debts, invest in home improvements, pay their bills, or simply to improve their quality of life in other ways.
No Need To Sell Off the Home
Homeowners with reverse mortgages do not have to worry about falling behind on payments and having to sell their home. They won't have to pay back their loan until they move out or pass away. If they do pass away, thn their heirs will have the option of paying back the loan and keeping ownership of the house or allowing the lender to take ownership and to sell it off. If the lender sells the home, they will only keep what was owed on the reverse mortgage. The difference will go to the heirs.
Maintain Ownership of Your Own Home
Senior homeowners dread having to sell off their house and be forced to move out. With a reverse mortgage, they retain ownership until they pass away or decide to sell by their own choice.
Eligibility Requirements for a Reverse Mortgage
To be eligible for a reverse mortgage, the borrower must meet the following requirements:
Reverse mortgages were designed for senior citizens, which means that at least one of the borrowers on the title of the house must be at least 62 years of age. In addition to being on the title, they must also use the house as their primary residence.
Counseling Session With a HUD Approved Organization
To ensure that the borrower completely understands how a reverse mortgage works and what their responsibilities and obligations will be to remain eligible, homeowners applying for a reverse mortgage must complete a financial counseling course. The course, which may require a fee, must be scheduled with a reverse mortgage counselor approved by HUD.
Certain Amount of Equity in Your Home
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The idea behind a reverse mortgage is that it allows homeowners to borrow against the equity they have in their home. This means that the more equity the homeowner has, the more they can borrow against it. While there are no hard rules concerning the amount of equity required to qualify for a reverse mortgage, most lenders will require that the borrower has at least 50 percent equity in their home. Age can also factor into the lender's equity requirements. The younger the eligible homeowner is, the more equity they will be required to have.
What Are My Options?
FIND OUT IF YOU ARE ELIGIBLE FOR A REVERSE MORTGAGE
If you or your spouse are over the age of 62 and you have enough equity in your home, you may qualify for a reverse mortgage. There are several factors that contribute to the qualification process, and several different options to ensure that a reverse mortgage will give you a better quality of life. To find out if you or your spouse will qualify, fill out the form below to contact our reverse mortgage specialist.
WHAT CAN I USE MY REVERSE MORTGAGE FOR?
A reverse mortgage can be used a variety of different ways to fit your lifestyle and you family. Many people use it to payoff an existing mortgage to stay in their home while others will use the additional income as a safety net.
Another option is a reverse mortgage for purchase, which could be used in a moving situation. Whether you are upsizing, downsizing, or relocating because of a divorce, a reverse mortgage for purchase will help make your transition into your new home smooth and easy.
REVERSE MORTGAGE DISCLAIMER
Reverse mortgages are loans offered to homeowners who are 62 or older who have equity in their homes. The loan programs allow borrowers to defer payment on the loans until they pass away, sell the home, or move out. Homeowners, however, remain responsible for the payment of taxes, insurance, maintenance, and other items. Nonpayment of these items can lead to a default under the loan terms and ultimate loss of the home. FHA insured reverse mortgages have an up front and ongoing cost; ask your loan officer for details. These materials are not from, nor approved by HUD, FHA, or any governing agency.
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