What You Need to Know About Reverse Mortgages
You probably heard about reverse mortgages. What do you really know about them? These types of loans are a great way for seniors to tap into the equity of their homes (the difference between the appraised value of the home and the debt from mortgage) to supplement their retirement income.
Also known as home equity conversion mortgage (HECM), these loans allow the borrower (you) to receive money from the lender as long as you live in the home and fulfill responsibilities like property taxes, insurance, and basic maintenance. The loan is repaid when the house is sold.
What are the benefits of reverse mortgages?
- They are designed not to exceed the value of the home. If, for whatever reason, the amount owed exceeds the value of the home, the borrower or his heirs do not have to pay the difference.
- You could get the money different ways. Your reverse mortgage can be paid as a lump sum, a line of credit, or as a monthly annuity.
- Get a steady income stream to help with retirement costs. If you are older with a lot of home equity, you will receive higher payments.
- Have the opportunity to pay off your existing mortgage or other unexpected expenses.
Who is eligible for reverse mortgages?
The requirements for reverse mortgages are not as strict as other types of financial products such as a home equity line of credit, mortgage refinance, or home equity loan.
To be eligible for a reverse mortgage you must:
- Be 62 years or older.
- Use your home as a primary residence.
- Have a single or multi-family home or approved condominium or manufactured home.
- Own your home completely or have good equity in it.
- Have a home in good condition.
Separating Fact from Fiction
Here are a couple of myths people commonly believe about reverse mortgages.
You are giving your home to the bank.
Fact: You never give up your title or ownership. The loan is repaid when the house is sold.
You must own your home free and clear to be eligible.
Fact: As long as your home has good equity you could be eligible for a reverse mortgage.
These are costly loans with lots of fees.
Fact: There are some initial fees when starting the loans, but the interest rates are comparable to conventional Federal Housing Administration (FHA) rates.
If you are a senior wanting to live in your home for the foreseeable future, you might want to consider a reverse mortgage. Find out more or consult a financial professional to see how these types of loans could benefit you.