Reverse Mortgages

What is a Reverse Mortgage?

A reverse mortgage is a type of home loan that lets home owners convert some of the equity in their homes into cash. By taking out a reverse mortgage, the home owner is essentially taking out equity that they built from their investment, and turning it into spending money. There are three different types of reverse mortgages: Single Purpose Reverse Mortgages, Private Proprietary Reverse Mortgages, and Home Equity Conversion Mortgages. The most common of these, and the one that this article discusses, is the Home Equity Conversion Mortgage. These loans do not have to be repaid until the borrower no longer uses the home as their primary residence, or fail to satisfy the conditions of the loan.

Home Equity Conversion Mortgages (HECM) were created to help retired senior citizens who have limited income to use their equity to cover basic living and medical expenses. This is typically what borrowers spend their money on, but there are no requirements on how they should spend their loan. It’s called a “reverse mortgage” because the lender is making payments to the borrower instead of the other way around. To learn all you need to know about reverse mortgages among other things, check out this podcast from the housing hour.

 

Reverse Mortgage Qualifications?

To qualify for a reverse mortgage, you must be a homeowner who is at least 62 years of age, own your own home, and have a mortgage balance that is low enough to be paid off with the funds from the reverse mortgage loan. You must be using the home as your primary residence, and are required to stay current with all property taxes and insurance premiums. Before you make application for a reverse mortgage, you will need to obtain counseling from a qualified HECM counselor.

Benefits of a Reverse Mortgage

With a reverse mortgage loan, you may elect to receive tax free funds as long as you live in the home. You will not have to pay taxes on the money you receive on your HECM because the payments are based on your equity, not earned income.

Also you might want to add maintaining your home as a requirement in addition to living in the home as your primary residence and paying the taxes and insurance.

Give me a call if you have questions.

Insured by the US Federal Government

These loans are very secure and safe for lenders and borrowers. There is no risk of foreclosure for failure to make monthly loan payments because there are no monthly payments due by the borrower. Because the government insures these loans, there is no risk on the line of credit you choose for payment to be withdrawn. The government also guarantees that you receive all of your payments.

Debt Not Transferred to Loved Ones

As mentioned earlier, HECM loans are insured by the federal government's Department of Housing and Urban Development. If the homeowner passes away and the value of the home is priced higher than the amount of the loan, the remaining equity will be transferred to surviving heirs. Also, there will never be any debt passed onto your loved ones in the case you pass away because the value of the loan can never be greater than the value of the home. Visit The Housing Hour to find more resources on home loans and all things home-related.