Reverse Mortgages
A reverse mortgage is a loan against the equity in the home that provides tax-free cash advances, but requires no payments during the term of the loan. Since there are no monthly payments during the life of the loan, the balance grows larger and the equity gets smaller.
The loan is not due and payable until the borrower no longer occupies the home as a principal residence, e.g., the last surviving borrower sells, moves out permanently or passes away.
You must be at least 62 years old and own your own home or condominium in order to qualify for a reverse mortgage. There are no income or credit requirements to qualify. Based on the amount of benefit which you qualify for, you may be eligible for a reverse mortgage even if you still owe money on your first mortgage.
How the Home Equity Conversion Mortgage Program Works
Homeowners 62 and older who have paid off their mortgages or have only small mortgage balances remaining, and are currently living in that home, are eligible to participate in the government’s reverse mortgage program.
The program allows homeowners to borrow against the equity in their homes. Homeowners can select from five payment plans:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amount of borrower’s choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
Homeowners whose circumstances change can restructure their payment options for a nominal fee of $20.
Unlike ordinary home equity loans, a government-sponsored reverse mortgage does not require repayment as long as the home is the borrower’s principal residence.
Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his/her survivors. You can never owe more than your home’s value.
If the sales’ proceeds are insufficient to pay the amount owed, the government will pay the lender the amount of the shortfall. The government’s Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage.
Common Reasons to Obtain a Reverse Mortgage
Seniors have been obtaining Reverse Mortgage loans for a variety of reasons. Since the proceeds from a Reverse Mortgage loan are tax-free, monthly mortgage payments are not required and the proceeds can be used for just about any purpose; many seniors are realizing financial flexibilities that they never expected would be available to them again.
Below are just a few of the common reasons and uses that Reverse Mortgage borrowers have identified:
Income:
- Obtain a Lump Sum of Money
- Receive monthly payments
- Have access to a Line of Credit
- Or any combination of these options, while eliminating the need to ever make mortgage payments again!
Debt Reduction:
- Payoff current mortgage loans
- Payoff personal liens
- Consolidate debts
Housing Considerations:
- Pay real estate taxes
- Pay for homeowners insurance
- Maintenance and upkeep of your home
- Home improvements and additions
- Purchase a New Home!
Financial Planning Considerations:
- Estate Planning
- Annuities
- Long-Term Care
- Life Insurance
- Maintaining your financial independence
Quality of Life Considerations:
- Being able to stay in your home as long as you chose!
- Travel
- Vacations
- Vacation properties
- Real estate investment opportunities
- Educational funding for you and/or your family
The comfort of knowing that your family and heirs will not need to provide financial support to maintain your lifestyle
Contact New Direction Capital for more information.