Considering A Reverse Mortgage?
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Entering retirement, you may be considering loan options to help give you financial peace of mind. Many of these options may involve your home’s mortgage or equity and the desire to relocate after retirement. Unfortunately, more and more traditional lenders are putting restrictions on new loans and lines of credit at this time.
When these traditional lenders are restricting your ability to retire comfortably, Reverse Mortgage Funding is here to help successfully fund your well-deserved retirement.
Did you know that in a blind test, most people chose a Reverse Mortgage Line of credit
over a traditional Home Equity Line of Credit (HELOC)?
What is a reverse mortgage?
A reverse mortgage is a way for borrowers age 62 or older to unlock the equity in their home by turning it into tax-free cash without having to make any monthly mortgage payments. While loan proceeds are not taxable income, property taxes must be paid. Please consult a tax advisor.
What are the qualifications?
- The borrower on title must be 62 years or older (a nonborrowing spouse may be under age 62)
- The home must be the borrower’s primary residence
- The borrower must own the home and meet the financial requirements of the HECM program
- What are the borrower’s obligations? Borrowers must continue paying property taxes and homeowners insurance, maintain the home, live in the home, and otherwise comply with the loan terms.
CALL TODAY to speak with a reverse mortgage professional.
Types Of Reverse Mortgages
There are three main types of reverse mortgages. But how do they differ?
Home Equity Conversion Mortgage (HECM)
The most common type of reverse mortgage is the HECM. This type of reverse mortgage is insured by the Federal Housing Administration (FHA). The most you can borrow with one of these loans is $1,089,300 in 2023. If you must borrow more than that, you’ll need to apply for a jumbo reverse mortgage.
Single-Purpose Reverse Mortgage
A single-purpose reverse mortgage is typically less expensive than a HECM. But it also comes with limits. As the name suggests, you can only use the funds from this type of reverse mortgage for one purpose. Your lender might approve you for the loan but stipulate that you can only use the funds to cover home repairs, insurance premiums, or your property tax bills. Typically, these loans are offered by charities and local governments to homeowners with lower to moderate incomes who are struggling to pay their bills. They are not available everywhere.
Jumbo Reverse Mortgage
You will need to take out a jumbo reverse mortgage, also known as a proprietary reverse mortgage, for any amount more than $1,089,300 in 2023. Because a larger loan is considered riskier, your lender might charge you higher fees and a higher interest rate for a jumbo reverse mortgage. Unlike a HECM, this type of reverse mortgage is not insured by the FHA. That means it does not come with as many protections. It also doesn’t require a HUD-approved counseling session or financial assessment.
Pros And Cons Of A Mortgage Reversal
As with many financial products, there are benefits and drawbacks to reverse mortgages.
Advantages Of A Reverse Mortgage
You get to stay in your home. If you’re struggling to pay your mortgage or other bills, a reverse mortgage will eliminate your monthly mortgage payment and provide you with an extra income stream. This might provide enough financial relief so that you can afford to stay in your home. Just remember, you’ll still have financial obligations with this loan. That includes paying your homeowners insurance and property taxes.
Reverse mortgages are immune to devaluation. If you take out a HECM, you don’t have to worry about declining home values because you’ll never owe more than the home is worth.
Your spouse may be able to remain in the home. If you pass away, your spouse might be able to stay in your home instead of selling. This can bring you peace of mind later in life.
Disadvantages Of A Reverse Mortgage
Your equity decreases. Remember, you’re borrowing from the equity in your home.
Your loan balance may increase. Unlike with other loans, the balance on your reverse mortgage will grow over time unless you make payments to cover the interest charged by your lender. This growing balance might not matter to you unless, again, you want to leave your home to your heirs.
You may outlive your loan’s benefits. Depending on how you receive your reverse mortgage proceeds, you could spend your money before you pass away. Consider taking out tenure monthly payments, which will provide equal monthly payments for as long as you live in the home. If you choose a different form of payment, you’ll need to make a plan for your money and spend it responsibly.
Your estate becomes smaller. Leaving your home to your heirs might become more complicated with a reverse mortgage. Your heirs may need to sell your home to pay off your reverse mortgage unless they can afford to cover these costs on their own.
How Do You Pay Back A Reverse Mortgage?
How you pay back a reverse mortgage varies depending on two main factors:
If you have a HECM and sell your home: If owners decide to sell their home after taking out a reverse mortgage, they must use the proceeds from this sale to pay off their loan. If the home sells for less than what the owners owe on the loan, they won’t be responsible for making up the difference as long as they have a HECM.
If you have a HECM and pass away: Your reverse mortgage must be paid off if you pass away. In this case, your heirs can sell your home and use the proceeds to pay off the reverse mortgage. They can also give the home to your lender. If they want to keep your home, they’d have to purchase the home.
If you move out of the home: You must live in the home as your primary residence for more than half the year. If you move out of the home, the reverse mortgage will come due. You’ll need to pay back the loan even if you wish to keep the home. That could be done with your own funds or by refinancing the loan.
Reverse Mortgage Vs. Refinance: Which Is Better?
While a reverse mortgage can supplement your income as you age, this type of financial tool might not be your best choice. There are times when you might consider alternatives to a reverse mortgage, especially if you want to leave your home to your children after you die or if you plan on selling the property.
You might instead consider refinancing options for seniors and the different types of mortgage refinancing that could be a better alternative to a reverse mortgage.
A cash-out refinance is one such option. Most people refinance to lower their interest rate or shorten or lengthen the term of their existing mortgage loan. A cash-out refinance, though, can also provide you with a lump sum of cash that you can spend on anything.
In a cash-out refinance, you’ll refinance for an amount higher than what you owe on your mortgage. Say you owe $100,000 on your mortgage and your home is worth $200,000. You might refinance for $170,000. You then receive that extra $70,000 as a lump sum payment. You’ll have to repay the full $170,000 that you’ve borrowed in regular monthly payments with interest. But if you pay off your new mortgage loan before you die, you can leave your home to your heirs without worrying about forcing them to pay off a reverse mortgage to gain the property.